SUNTIEN GREEN ENERGY(600956)：LEADING CLEAN ENERGY OPERATOR IN NORTHERN CHINA DRIVEN BY NEW ENERGY AND NATURAL GAS BUSINESS

　　Action

    　　We raise our target price for China Suntien Green Energy (Suntien) H-share to HK$8.40, implying 12x 2022e P/E. We initiate coverage Suntien Green Energy (A-share) with an OUTPERFORM rating and a target price of Rmb21.20，implying 34x 2022e P/E.

    　　Reasoning

    Leading clean energy solution supplier in northern China. The　company is primarily engaged in the exploration and utilization of new and clean energy sources. It is the largest gas distributor and wind power operator in Hebei, and among the top-10 largest wind power operators in China. It has maintained solid revenue growth in recent years thanks to growing wind power installations and gas sales volume. In 1-3Q21, its revenue and attributable net profit increased 28.6% and 62.7% YoY.

    　　New-energy-based power generation business has large growth potential during 14th FYP period. The new-energy-based power　generation business is the firm’s main earnings contributor, accounting for 80% of its total gross margin in 2020. We think Suntien, as the largest wind power operator in Hebei, has strong competitive advantages in operating efficiency, financing costs, and wind and solar power inventory. We are upbeat on the growth of its new energy installations, given the provincial government of Hebei plans to double its wind and solar power installations (vs. end-2020) during the 14th Five-Year Plan (FYP 2021-2025) period.

    　　Leading regional gas distributor to optimize natural gas business on　back of new LNG terminal. The company is stepping up efforts in the construction of new liquefied natural gas (LNG) terminal. We expect it to generate solid income from natural gas operations and peak shaving, and improve its gas purchase costs after its LNG terminal begins operation.According to the company’s feasibility report, its profit will likely increase by Rmb710mn after its LNG terminal in Tangshan, Hebei province, starts operation in 2025. In 2020, earnings from its natural gas business were only Rmb520mn.

    　　Earnings forecast and valuation

    　　Our EPS forecasts are Rmb0.57 for 2021 and Rmb0.62 for 2022, implying a CAGR of 25%. We initiate coverage of Suntien A-share with an OUTPERFORM rating and a SOTP-based target price of Rmb21.20, implying 34x 2022e P/E with 30% upside. Given the faster-than-expected growth in the wind power business, we raise our 2021 earnings forecast for Suntien H-share 45% to Rmb2.21bn, and introduce a 2022 earnings forecast of Rmb2.39bn. Considering the improving valuations of renewable power operators, we maintain an OUTPERFORM rating for Suntien H-share and raise our target price 265% to HK$8.40, implying 12x 2022e　P/E with 46.6% upside. Suntien A- and H-share are trading at 27x and 8x 2022e P/E.

    　　Risks

    　　On-grid power tariff declines; electricity generation from wind power drops; natural gas prices fluctuate.