Myanmar joint venture power generation project operates as expected in the second half of the year
We recently communicated with the Weineng Group and learned that the company was limited by the COVID-19 epidemic and had good fundamentals. After the natural gas power generation project in Myanmar, a joint venture between the company and the China Technology Import and Export Group, was put into operation in June this year, the operation reached half of the contracted installed capacity in the second half of the year, even during the Myanmar rainy season (late June-October). We expect the Myanmar joint venture to generate electricity at full capacity during the dry season in the first half of next year (from November to May next year) and at half capacity in the second half of the year, as this year. The Myanmar joint venture project can roughly guarantee a substantial increase in the company's profits this year and next, due to the large installed capacity of the project, which accounts for 56.5% of the company's total installed capacity of 1874 megawatts (as of the end of June this year), or 1060 megawatts. The company's shareholder net profit rose 84.5% in the first half of this year compared with the same period last year.
The current Burmese government has won the parliamentary election, excluding policy ambiguity. The current Burmese government led by Aung San Suu Kyi has won the parliamentary election at the beginning of this month and can remain in power. This excludes policy ambiguity and facilitates companies to operate existing projects and acquire new projects in Myanmar.
The influence of COVID-19 epidemic situation on project development is limited.
Under the COVID-19 epidemic, the construction progress of some of the company's planned projects in Sri Lanka and Brazil may be affected in the second half of this year or next year, but the total installed capacity of these projects is only about 150MW, even if delayed. we think the impact on profitability is limited.
The valuation is very attractive, reiterating the "buy" rating.
After taking into account the above factors, we have slightly lowered our shareholder net profit forecasts for 2020-2022 by 1.5%, 0.7% and 0.2%, respectively. We also technically adjust the beta coefficient (Beta) and risk premium assumptions in the financial model, and accordingly slightly adjust the target price projected by the discounted cash flow (DCF) analysis from HK $5.80 to HK $5.30, which corresponds to 12.9 times 2021 price-to-earnings ratio and 72.6% room for increase. Since the company completed an additional share offering at HK $3.75 per share in July this year, the total share capital at that time was expanded by 3.2%, ruling out the short-and medium-term possibility of diluted earnings. The market will once again focus on the fundamentals of the company. The current valuation is very attractive and we reiterate our "buy" rating.
Risk hints: (1) delays in project development; (2) tight supply of natural gas; (3) policy risks; and (4) slowdown in electricity demand.