台海核电(002366)重大事项点评:控股股东引入中核香港产业基金 基本面反转趋势确立

Comments on the major issues of Taiwan Strait Nuclear Power (002366): the fundamentals reversal trend of CNPC Hong Kong Industrial Fund introduced by controlling shareholders has been established.

中信證券 ·  12/13/2018  · Researches

The Taiwan Strait Nuclear Power announced on December 11 that the controlling shareholder, Taiwan Strait Group, and CNPC Hong Kong Industrial Fund Co., Ltd. signed an "agreement on capital increase and share expansion." according to the agreement, the Nuclear Hong Kong Industrial Fund plans to subscribe to the additional registered capital of the Taiwan Strait Group at a cost of HK $1.5 billion. After the capital increase is completed, CNPC Hong Kong Industrial Fund will hold a 48.2 per cent stake in Taiwan Strait Group. We believe that the introduction of CNPC funds will have a positive effect on the company in terms of core customer binding, cash flow pressure, new business development, etc., and the company's fundamentals will be greatly improved, which is expected to eliminate the previous doubts about the company in the market.

Endorsed by strategic shareholders, the company's cash flow pressure relief. The company's cash flow has been tight over the past few years due to stagnant construction of nuclear power facilities and slow customer payback. In the future, the company's cash flow pressure is expected to be relieved from three aspects. (1) the 1.5 billion yuan of this capital increase is expected to directly improve the cash flow pressure of the Taiwan Strait Group and companies, and solve the problem of shortage of investment funds for production expansion projects in the previous company's refinancing plan. (2) the rapid decision-making of the China Nuclear Fund indicates that the company has been highly recognized by the leaders of the nuclear power industry, the financing conditions of the company are expected to be greatly improved, and the problems of financing availability and capital cost will be effectively solved. (3) the problem of pledge arrears of major shareholders is expected to be solved.

Bind the leader of the nuclear power industry and enhance the status of the industrial chain. The company's main business is the manufacture and sale of nuclear island core equipment for onshore / offshore nuclear power facilities, and CNNC is one of the company's most important downstream customers. After the completion of the capital increase, the fund of the China Nuclear Department will become the largest single shareholder of the Taiwan Strait Group, the controlling shareholder. Backed by CNNC, it is expected that the company's position in the industrial chain will be further consolidated and enhanced, and is expected to fully benefit from the next round of nuclear power construction and gain higher market share on the basis of product line expansion and extension. Three concerted actors, including the chairman, will still hold a 51.8% stake in the group, and the actual controller will remain unchanged.

With the marginal improvement of the nuclear power industry, the end of the year will be an important time window to observe whether nuclear power is restarted. The world's first AP1000 unit Sanmen No.1 realized commercial transportation in 18Q3. With the resolution of AP1000 technical problems and the policy of stabilizing the economy through infrastructure construction, the expectation of resumption of domestic nuclear power construction has increased. Assuming that 6-8 new units will be built in China in the future, the domestic nuclear power equipment market will be about 50 billion yuan per year. At present, the company has achieved full coverage of the main equipment on the nuclear island, and extended the product line to nuclear waste treatment equipment.

The controlling shareholder led the establishment of the Blue Sky and Taiwan Strait Nuclear Energy Project Management Company to increase the offshore nuclear power business. In December, Taiwan Strait Group established a joint venture with China Nuclear Power, Yantai Blue Sky Investment, China Nuclear Industry II and III Construction, and CIMC Ocean Engineering Research Institute. Taiwan Strait Group holds a 35% stake and mainly undertakes offshore nuclear power plant projects. Industrial parks in coastal cities are expected to be the first customers in the company's offshore nuclear power plant business. The company announced in early 2018 that it received 3.65 billion large orders for offshore nuclear power equipment, and we expect its offshore nuclear power equipment orders to be sustainable.

Risk factors: the progress of the capital increase project is lower than expected, the restart progress of nuclear power is lower than expected, and the expansion of new business is blocked.

Investment suggestion: due to the lower-than-expected progress of onshore nuclear power approval restart, the bidding for nuclear power equipment has been greatly reduced, while the progress of revenue recognition of offshore nuclear power equipment has been lower than expected. We lowered the company's profit forecast to $1.04 billion (the original forecast was $1.320 billion). In the early stage, due to uncertainty about the resumption of nuclear power projects, pledge by major shareholders, "false media reports" and other reasons, the company's profits and share prices fell back sharply. As the China Nuclear Fund has become the largest single shareholder of the Taiwan Strait Group, the fundamental problems of the company are expected to be solved one by one, and the reversal trend of the company has been clear, maintaining the "buy" rating.

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