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1、,Index,FlashnoteNat Resources&EnergyIndependent Power ProducersEquity ChinaOverweight,abcGlobal ResearchChina Resources Power(836 HK)OW:Forecasts downgraded on cuts to coal revenue,Target price(HKD)Share price(HKD)Potential return(%),19.8016.7218.4,Earnings forecasts downgraded on big cuts in coal r
2、evenue.Power segment forecasts are unchanged,Note:Potential return equals the percentagedifference between the current share price andthe target price,Peers have improved RoEs,so CRPs multiple premium lessjustified.CRP lagged the IPP rally for good reason,Performance,1M,3M,12M,Absolute(%)Relative(%)
3、,0.7-8.3,7.0-2.3,12.210.9,We decrease FY12e/13e EPS by 12%/17%(now in line with,HANG SENG CHINA ENTERPRISESINDEX,consensus).Reiterate OW.TP to HKD19.80 to HKD20.80,RIC,0836.HK,BloombergMarket cap(USDm)Market cap(HKDm)Enterprise value(HKDm)Free float(%),836 HK10,26679,57214219235,Earnings forecasts r
4、evised down by FY12e/13e 12%/17%due to coal segmentweakness:All year,in oversupplied coal markets,CRPs coal production has lagged itsFY12e guidance for 18.5mt and 9M12 had reached 12.5mt.We understand that somecoal mine production was halted in October,due to safety issues for National Congress inNo
5、vember.We expect CRPs October coal production to be very weak and downgradeFY12e/13e coal output by 12%to 16.3mt/17.1mt.After revision,9M12 coal output is70%of our FY12e.,9 November 2012Jenny Cosgrove*AnalystThe Hongkong and Shanghai BankingCorporation Limited+852 2996.hkSummer Huang*AnalystThe Hong
6、kong and Shanghai BankingCorporation Limited+852 2996.hkView HSBC Global Research at:http:/*Employed by a non-US affiliate ofHSBC Securities(USA)Inc,and is notregistered/qualified pursuant to FINRAregulationsIssuer of report:The Hongkong andShanghai BankingCorporation LimitedDisclaimer&DisclosuresTh
7、is report must be readwith the disclosures andthe analyst certifications inthe Disclosure appendix,and with the Disclaimer,which forms part of it,We also review our coal ASP and cut FY12e/FY13e forecasts by 10%/6%based onHSBCs forecasts for the companys product mix.Power segment forecasts areunchang
8、ed.Our FY12e/13e EPS is now in line with consensus.Coal segment will be23%of FY12e net profit(down from 40%in FY11).Lagging behind peers but for good reason-CRPs forward PB premium over Huaneng(902HK,CMP HKD6.13,OW,TP HKD7.10)has decreased from average c50%in 2011to 2%now.We think this narrowing is
9、appropriate as CRPs earnings are half as sensitiveto benefits of a lower coal price,because it has a coal business and in the power businessthis it year is using more contract coal at 45%of total purchase vs HNP at 25%.The RoEof CRP is now similar to HNP so the PB should be similar too.We see the ne
10、xt major catalyst for CRP to be cancellation of contract coal allowingCRP to benefit from more exposure to lower spot coal price and potential tariff reformwhich could follow.The timing and impact of these reforms is uncertain.We still seeCRP as a defensive IPP as it has good earning track records a
11、nd lower gearing than others.Reiterate OW rating and cut TP to HKD19.80 from HKD20.80.Our valuation is basedon two equally weighted methodologies:DCF valuation decreased from HKD23.28 toHKD21.93(unchanged WACC 8.8%)and PB decreased from HKD18.31 to HKD 17.63(unchanged 1.4x one-year fwd FY13e PB).Dow
12、nside risk includes lower-than-expectedcoal production,coal ASP,power generation;and higher-than-expected coal price.,China Resources Power(836 HK)Independent Power Producers9 November 2012Financials&valuationFinancial statements,Valuation data,abc,Year to,12/2011a,12/2012e,12/2013e,12/2014e,Year to
13、,12/2011a,12/2012e,12/2013e,12/2014e,Profit&loss summary(HKDm),EV/sales,2.3,2.2,2.0,1.6,RevenueEBITDADepreciation&amortisationOperating profit/EBITNet interestPBT,60,70912,564-5,5027,062-1,0376,862,65,83817,476-5,98911,487-3,0019,685,72,24019,585-6,38313,202-2,66111,923,84,03724,136-6,81717,320-2,95
14、115,941,EV/EBITDAEV/ICPE*P/NAVFCF yield(%)Dividend yield(%),11.21.317.71.7-11.01.8,8.11.211.71.5-2.82.7,7.21.210.11.3-1.53.2,5.61.17.41.28.54.3,HSBC PBTTaxationNet profitHSBC net profit,6,862-1,2434,4514,451,9,685-1,3906,7656,765,11,923-2,4617,8287,828,15,941-3,23810,72910,729,Note:*=Based on HSBC E
15、PS(fully diluted)Price relative,Cash flow summary(HKDm)Cash flow from operationsCapexCash flow from investment,12,575-14,789-18,904,15,371-12,000-9,920,17,973-12,969-10,531,21,313-8,720-6,236,2725232119,2725232119,Dividends-2,734Change in net debt 10,382FCF equity-6,915Balance sheet summary(HKDm),-1
16、,416395-1,767,-2,152-1,008-940,-2,490-8,1395,505,171513119,171513119,Intangible fixed assetsTangible fixed assetsCurrent assetsCash&others,14,73796,41925,8064,500,16,225100,45227,6278,421,17,654105,03739,26818,349,19,004104,94149,51725,442,2010China Resources PowerSource:HSBC,2011 2012Rel to HANG SE
17、NG CHINA ENTERPRISES INDEX,2013,Total assets,168,366,175,724,193,419,204,984,Operating liabilitiesGross debtNet debtShareholders fundsInvested capital,23,00082,98778,48847,473109,462,19,43787,30478,88253,237116,445,21,17696,22477,87459,438122,434,23,84895,17869,73568,218124,171,Note:price at close o
18、f 08 Nov 2012,Ratio,growth and per share analysis,Year to,12/2011a,12/2012e,12/2013e,12/2014e,Y-o-y%change,RevenueEBITDAOperating profitPBTHSBC EPS,25.010.2-0.95.3-9.0,8.439.162.741.152.0,9.712.114.923.115.7,16.323.231.233.737.1,Ratios(%),Revenue/IC(x)ROICROEROAEBITDA marginOperating profit marginEB
19、ITDA/net interest(x)Net debt/equityNet debt/EBITDA(x)CF from operations/net debt,0.65.69.95.520.711.612.1141.06.216.0,0.68.713.46.826.517.45.8126.74.519.5,0.68.813.96.827.118.37.4112.44.023.1,0.711.216.88.028.720.68.288.02.930.6,Per share data(HKD),EPS reported(fully diluted)HSBC EPS(fully diluted)D
20、PSNAV,0.940.940.3010.06,1.431.430.4611.28,1.661.660.5312.59,2.272.270.7214.45,2,China Resources Power(836 HK)Independent Power Producers9 November 2012Key assumptionsCoal production outputRevision on CRP coal output,abc,New vs OldProduction(mt)OldNew%change,2012e18.5516.33-12%,2013e19.8017.45-12%,20
21、14e21.5519.95-7%,ASP(yoy%),OldNew,-3%-10%,0%-6%,0%0%,Source:HSBC estimatesCoal ASP1H2012 calculated coal ASP decreased by 18%y-o-y,1H2011,1H2012,Coal RevenueSubsidiary coal mines outputCalculated ASPy-o-y%,HKDmmtHKD/t,3,7096,69555415%,2,5205,571452-18%,Source:CRPHSBC coal price forecast,Coal ASPCoki
22、ng-Fushan No 4,f.o.rThermal-Shanxi Mixed Blend(5500kcal)AnthraciteWeighted changed in CRP ASP,2012e-13%-13%0%-10%,2013e-15%-4%0%-6%,%of CRP production23%57%20%,Source:HSBC estimatesSummary of assumptionsCRP assumptions,2012e,2013e,2014e,Total attributable capacity(MW)%changeAverage tariff(HKD/MWh)%c
23、hangeUnit Fuel cost(HKD/MWh)%changeAverage utilisation hours%change,25,00012%6666%319-6%5,754-6%,28,80015%6660%3200%5,9962%,31,60010%6660%3200%5,9960%,Source:HSBC estimates3,China Resources Power(836 HK)Independent Power Producers9 November 2012Sensitivity analysisCRP sensitivity analysis_ 2012e _ _
24、 2013e _,abc,1%increase,1%decrease,1%increase,1%decrease,Coal pricesOn-grid tariffsUtilization RatesInterest rates,-5.1%3.6%2.5%25bps increase-2.7%,5.1%-3.6%-2.5%25bps decrease2.7%,-4.3%3.3%2.3%25bps increase-2.0%,4.3%-3.3%-2.2%25bps decrease2.0%,Source:HSBC estimatesEarnings Forecast RevisionsNew v
25、s Old,Revenues,2012e,2013e,2014e,OldNew%Change,67,44365,838-2.4%,74,61772,240-3.2%,84,90584,037-1.0%,EBIT,OldNew%ChangeNet ProfitOldNew%Change,13,08811,487-12.2%7,4996,765-9.8%,15,58813,202-15.3%9,4847,828-17.5%,18,31617,320-5.4%10,99310,729-2.4%,EPS,OldNew%Change,1.631.43-11.9%,2.001.66-17.1%,2.412
26、.27-5.5%,Source:HSBC estimatesHSBC vs Consensus,Forecast YearsSalesHSBCConsensusEBITHSBCConsensusNet incomeHSBCConsensusEPSHSBCConsensus,2012e-1%65,83866,612-10%11,48712,824-1%6,7656,8270%1.431.44,2013e-6%72,24077,039-16%13,20215,644-4%7,8288,183-3%1.661.72,2014e-2%84,03785,886-1%17,32017,51018%10,7
27、299,06920%2.271.90,Source:HSBC estimates,Bloomberg4,Jan-10,Feb-10,Mar-10,Apr-10,May-10,Jun-10,Jul-10,Aug-10,Sep-10,Oct-10,Nov-10,Dec-10,Jan-11,Feb-11,Mar-11,Apr-11,May-11,Jun-11,Jul-11,Aug-11,Sep-11,Oct-11,Nov-11,Dec-11,Jan-12,Feb-12,Mar-12,Apr-12,May-12,Jun-12,Jul-12,Aug-12,Sep-12,Oct-12,Sep-11,Oct
28、-11,Nov-11,Dec-11,Jan-12,Feb-12,Mar-12,Apr-12,May-12,Jun-12,Jul-12,Aug-12,Sep-12,Oct-12,China Resources Power(836 HK)Independent Power Producers9 November 2012CRP vs HNPForward PB2.001.501.000.50CRP Fw d P/BSource:Bloomberg,HSBCForward PE12.0011.0010.009.008.007.006.005.00CRP F w d P/E,HNP Fw d P/BH
29、NP Fw d P/E,abc,Source:Bloomberg,HSBC5,China Resources Power(836 HK)Independent Power Producers9 November 2012Segment splitRevenue split,EBIT split,abc,100%80%60%40%20%,5%96%,12%89%,14%87%,12%89%,11%90%,11%89%,100%80%60%40%20%,6%94%,17%83%,37%63%,23%77%,20%80%,19%81%,0%,0%,2009,2010,2011,2012e,2013e
30、,2014e,2009,2010,2011,2012e,2013e,2014e,Source:CRP,HSBC estimates,Pow er,Coal,Source:CRP,HSBC estimates,Pow er,Coal,Valuation and risksOur valuation is based on two equally weighted methodologies:DCF valuation decreased fromHKD23.28 to HKD21.93(unchanged WACC 8.8%)and PB decreased from HKD18.31 to H
31、KD 17.63(unchanged 1.4x one-year fwd FY13e PB).Under our research model,for stocks with a volatility indicator,the Neutral band is 10ppt above andbelow the hurdle rate for China equities of 10%.Our target price of HKD19.80 implies a potential returnof 18%,which is above the Neutral band;therefore,we
32、 reiterate our Overweight rating.Potential returnequals the percentage difference between the current share price and the target price,including theforecast dividend yield when indicated.Downside risk includes lower-than-expected coal production,coal ASP,power generation;and higher-than-expected coa
33、l price.6,China Resources Power(836 HK)Independent Power Producers,abc,9 November 2012Disclosure appendixAnalyst CertificationThe following analyst(s),economist(s),and/or strategist(s)who is(are)primarily responsible for this report,certifies(y)that theopinion(s)on the subject security(ies)or issuer
34、(s)and/or any other views or forecasts expressed herein accurately reflect theirpersonal view(s)and that no part of their compensation was,is or will be directly or indirectly related to the specificrecommendation(s)or views contained in this research report:Jenny Louise Cosgrove and Summer HuangImp
35、ortant disclosuresStock ratings and basis for financial analysisHSBC believes that investors utilise various disciplines and investment horizons when making investment decisions,whichdepend largely on individual circumstances such as the investors existing holdings,risk tolerance and other considera
36、tions.Given these differences,HSBC has two principal aims in its equity research:1)to identify long-term investment opportunitiesbased on particular themes or ideas that may affect the future earnings or cash flows of companies on a 12 month time horizon;and 2)from time to time to identify short-ter
37、m investment opportunities that are derived from fundamental,quantitative,technical or event-driven techniques on a 0-3 month time horizon and which may differ from our long-term investment rating.HSBC has assigned ratings for its long-term investment opportunities as described below.This report add
38、resses only the long-term investment opportunities of the companies referred to in the report.As and whenHSBC publishes a short-term trading idea the stocks to which these relate are identified on the website Details of these short-term investment opportunities can be found under the Reports section
39、 of thiswebsite.HSBC believes an investors decision to buy or sell a stock should depend on individual circumstances such as the investorsexisting holdings and other considerations.Different securities firms use a variety of ratings terms as well as different ratingsystems to describe their recommen
40、dations.Investors should carefully read the definitions of the ratings used in each researchreport.In addition,because research reports contain more complete information concerning the analysts views,investorsshould carefully read the entire research report and should not infer its contents from the
41、 rating.In any case,ratings should notbe used or relied on in isolation as investment advice.Rating definitions for long-term investment opportunitiesStock ratingsHSBC assigns ratings to its stocks in this sector on the following basis:For each stock we set a required rate of return calculated from
42、the cost of equity for that stocks domestic or,as appropriate,regional market established by our strategy team.The price target for a stock represents the value the analyst expects the stockto reach over our performance horizon.The performance horizon is 12 months.For a stock to be classified as Ove
43、rweight,thepotential return,which equals the percentage difference between the current share price and the target price,including theforecast dividend yield when indicated,must exceed the required return by at least 5 percentage points over the next 12 months(or 10 percentage points for a stock clas
44、sified as Volatile*).For a stock to be classified as Underweight,the stock must beexpected to underperform its required return by at least 5 percentage points over the next 12 months(or 10 percentage pointsfor a stock classified as Volatile*).Stocks between these bands are classified as Neutral.Our
45、ratings are re-calibrated against these bands at the time of any material change(initiation of coverage,change of volatilitystatus or change in price target).Notwithstanding this,and although ratings are subject to ongoing management review,expected returns will be permitted to move outside the band
46、s as a result of normal share price fluctuations without necessarilytriggering a rating change.7,Nov-07,Nov-08,Nov-09,Nov-10,Nov-11,May-08,May-09,May-10,May-11,May-12,Nov-12,45%,17%,4,China Resources Power(836 HK)Independent Power Producers,abc,9 November 2012*A stock will be classified as volatile
47、if its historical volatility has exceeded 40%,if the stock has been listed for less than 12months(unless it is in an industry or sector where volatility is low)or if the analyst expects significant volatility.However,stocks which we do not consider volatile may in fact also behave in such a way.Hist
48、orical volatility is defined as the pastmonths average of the daily 365-day moving average volatilities.In order to avoid misleadingly frequent changes in rating,however,volatility has to move 2.5 percentage points past the 40%benchmark in either direction for a stocks status to change.Rating distri
49、bution for long-term investment opportunitiesAs of 08 November 2012,the distribution of all ratings published is as follows:,Overweight(Buy),(28%of these provided with Investment Banking Services),Neutral(Hold)Underweight(Sell),38%,(26%of these provided with Investment Banking Services)(20%of these
50、provided with Investment Banking Services),Share price and rating changes for long-term investment opportunities,China Resources Power(0836.HK)Share Price performance HKD Vs HSBC,Recommendation&price target history,rating history292419149Source:HSBC,FromOverweight(V)OverweightN/AOverweightNeutralTar
