Werneng Group is one of the global large-scale generator system integrators. Its business consists of two parts, namely, SI business and IBO business. The SI business designs, integrates and sells generator sets, supporting equipment and power generation systems for customers, while the IBO business focuses on delivering distributed generation projects.
As the company's large joint venture project in Myanmar was put into production in the middle of this year, and other IBO projects have been put into operation, the company's total installed capacity has increased significantly, which is expected to increase from the growth of IBO business and the contribution of the joint venture, and the financial performance in 2020-2021 will usher in a period of high growth.
There are broad prospects for the distributed generation industry, especially in Myanmar, the focus of the company's business, where the power-up rate is still lower than that of other neighboring countries. The country earlier launched the National electrification Plan, which aims to achieve a national electricity rate of 75% by 2025 and 100% by 2030. With economic development and urbanization, electricity demand is expected to remain high, bringing more opportunities for the company's IBO business. Zhongji Weineng successfully put into production the Myanmar project, providing a demonstration of the use of LNG as fuel for distributed power plants. In the depressed environment of liquefied natural gas (LNG), it will help attract the Burmese government or other buyers to develop more LNG projects.
Profit forecast and investment advice
The expected net profit of shareholders attributable to the parent company in 2020 and 2021 is HK $560 million and HK $1.03 billion, respectively, equivalent to HK $0.21 and HK $0.39 per share, respectively. According to our discounted cash flow (DCF) model, the projected target price is HK $4.89, which is equivalent to 12.5 times the forecast price-to-earnings ratio for 2021, with a potential increase of about 74.0%. We covered for the first time, giving a "buy" rating.
Potential downside risks: new order growth is not as expected; policy risk; slowdown in electricity demand in major business countries