The impact of the epidemic is greater than expected: project delays and electricity demand are less than estimated. After our recent communication with the Weineng Group, we think that the impact of COVID-19 's epidemic on the company is greater than the assessment we made in November last year. The company has encountered delays in power generation projects in Indonesia, Sri Lanka and Brazil. We estimate that the delay will be as long as half a year. As the movement of personnel is restricted under the epidemic, even if some projects have been largely completed, the testing and acceptance work cannot be carried out. On the other hand, three natural gas power generation projects in Myanmar jointly operated by the company and the China Technology Import and Export Group began operation in the middle of last year. However, as a result of the epidemic, the local electricity demand in Myanmar is less than we estimated. We do not expect the Myanmar project to generate electricity at full capacity as we had expected in the first half of this year.
The general trend of growth remains unchanged.
Nevertheless, we still consider the above impact to be non-structural. Due to the lack of power construction, Southeast Asia is structurally short of electricity. When the epidemic is brought under control in the future, electricity demand will pick up. The general trend of the company's business growth remains unchanged.
Downgrade profit forecast
We have lowered our shareholder net profit forecasts for 2020-2022 by 17.1%, 32.0% and 25.8% to HK $500 million, HK $750 million and HK $1.03 billion, respectively, which can still increase by 77.4%, 48.1% and 37.9% compared with the same period last year. The company announced Yingxi on Friday (22nd) and expects shareholders' net profit to increase by more than 70.0% last year compared with the same period last year. Our estimates are in line with the company's Yingxi expectations.
Lower the target price by 30.2% to HK $3.70 and reiterate the "buy" rating. Accordingly, we have lowered the target price projected by the discounted Cash flow (DCF) analysis by 30.2% to HK $3.70 from HK $5.30, corresponding to 13.1 times 2021 price-to-earnings ratio and 41.8% upside. Valuations are currently attractive. Reiterate the "buy" rating. The company will announce its annual results for 2020 in late March, when we will update our earnings forecasts and ratings.
Risk hints: (1) delays in project development; (2) tight supply of natural gas; (3) policy risks; and (4) slowdown in electricity demand.