SUNTIEN GREEN ENERGY(600956)：1H22 RESULTS IN LINE;MULTI-ENERGY INTEGRATION PROJECTS TO BE LAUNCHED

1H22 results in line with our forecast

    Suntien Green Energy (Suntien) announced 1H22 results: Revenue rose 19.7% YoY to Rmb10.23bn, and attributable net profit fell 5.29% YoY to Rmb1.62bn (or Rmb0.38 a share), in line with our expectations. In 2Q22, revenue and net profit totaled Rmb3.89bn and Rmb679mn.

    In 1H22, wind power generation rose 0.37% YoY to around 7.58bn kWh. Wind power farms that Suntien controls reported 1,349 utilization hours, implying a YoY decline of 84 hours. As of end-1H22, wind power and solar power projects that Suntien controls had an installed capacity of 5.68GW and 0.12GW.

    Total gas transmission volume expanded 7.18% YoY to around 2.46bn m3 in 1H22.

    Trends to watch

    Ample projects in pipeline drive mid- and long-term solid growth in new energy power generation business. New wind power and solar power projects with total capacity of 3.3GW and 3.6GW were included in the governmental development and construction plans in 1H22. As of end-1H22, Suntien’s total cumulative wind power and solar power capacity included in governmental development and construction plans reached 52.4GW and 15.8GW. We believe Suntien could launch its ample pipeline wind and solar power projects in phases, steadily contributing earnings. This comes amid the firm’s guidance of 10GW renewable energy installed capacity at the end of the 14th Five-Year Period (2021–2025).

    Suntien plans to invest in and build series of integration projects that cover multiple energy sources in bid to strengthen synergies between new energy power generation and natural gas businesses. When announcing 1H22 results, Suntien also said it signed agreements with Qing County, Cangzhou, and Bohai New District to build multi-energy integration projects. In addition, the firm signed a framework agreement with Beidaihe New District in August to build an integration project that covers gas-fired, wind power, and solar power generation. Such integration projects can leverage natural gas power plants’ flexible peak-shaving abilities to raise investment returns of new energy power generation projects. Therefore, we think execution of these integration projects may gradually strengthen Suntien’s synergies between new energy power generation and natural gas businesses.

    Financials and valuation

    We maintain our 2023 earnings forecast; we lower our 2022 earnings forecast by 7.2% from Rmb2,430mn to Rmb2,255mn on lower than expected wind power generation in 1H22. The H-share is trading at 5.8x 2022e and 4.3x 2023e P/E. The A-share is trading at 22.4x 2022e and 16.7x 2023e P/E. For H-shares, we maintain OUTPERFORM but lower our target price by 23.1% to HK$5.00 (8.0x 2022e P/E and 6.0x 2023e P/E) due to a lower market valuation, offering 37.7% upside from the current price. For A-shares, we maintain OUTPERFORM and our target price of Rmb15.00 (27.8x 2022e P/E and 20.8x 2023e P/E), offering 24.5% upside from the current price.

    Risks

    Disappointing new-energy installation volume; sharp volatility of natural gas prices.