摩根士丹利-中国城市化2.0：大湾区向低碳能源转型的受益者们-2019.10.13-97页 (2).pdf

MMChinas Urbanization 2.0Beneficiaries of the Greater Bay Areas Transition to Low-Carbon Energy Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research.As a result,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research.Investors should consider Morgan Stanley Research as only a single factor in making their investment decision.For analyst certification and other important disclosures,refer to the Disclosure Section,located at the end of this report.+=Analysts employed by non-U.S.affiliates are not registered with FINRA,may not be associated persons of the member and may not be subject to NASD/NYSE restrictions on communications with a subject company,public appearances and trading securities held by a research analyst account.Nuclear is the best option for GBAs transition to low carbon.We double upgrade CGN Power to OW and upgrade HKEI to OW.October 13,2019 10:43 PM GMTMMMORGAN STANLEY ASIA LIMITED+Simon H.Y.Lee,CFAEquity Analyst+852 2848-1985Simon.L Contributors MORGAN STANLEY ASIA LIMITED+Beryl WangResearch Associate+852 3963-3643Beryl.WMORGAN STANLEY ASIA LIMITED+Yishu YanResearch Associate+852 3963-2846Yishu.YMORGAN STANLEY ASIA LIMITED+Eva HouEquity Analyst+852 2848-6964Eva.HMMChinas Urbanization 2.0Beneficiaries of the Greater Bay Areas Transition to Low-Carbon Energy Nuclear is the best option for GBAs transition to low carbon.We double upgrade CGN Power to OW and upgrade HKEI to OW.Nuclear renaissance from 2020:We expect acceleration of nuclear approvals upon commissioning of Chinas first Hualong One unit.Nuclear is competitive with coal under new market structure,and will replace coal to become the core baseload power source.CGN Power will be the key beneficiary.Hydropower from Yunnan and Tibet from 2025:West to East Power supplied 36.2%of Guangdongs power demand in 2018.We expect 10-20GW of additional power to Guangdong by 2030,pri-marily supplied by China Yangtze Powers Wudongde(5GW)and Huaneng Hydros planned 10GW of Tibetan hydropower.Hong Kong to import from Guangdong:Hong Kongs target of decarbonization by 2050 requires 80%clean energy,vs.local resources of 3-4%.Import nuclear from Guangdong is the only viable option.We expect CLP to import more from 2025 and HKEI to con-nect with Guangdong via undersea power lines.Upgrade CGN Power and HK Electric Investments to OW:For CGN Power,we see acceleration of approvals based on Hualong One and rising dividends with its strong FCF.HKEI offers the highest yield among HK utilities and regulated asset growth from undersea con-nection with Guangdong nuclear plants.Maintain OW on China Yangtze Power and EW on Huaneng Hydro:CYPC may have dividend growth upside from 2021 based on a 70%payout ratio.Huaneng Hydros capex on 10GW capacity in Tibet could delay dividend upside.Resume coverage of CKI and PAH at EW:We see rising near-term FX volatility in GBP ahead of Brexit,with regulatory resets in UK and Australian assets cutting related earnings by 10%.CKIs three acqui-sitions in 2017 generated 5%ROE,lower than expected.Industry ViewChina Utilities AttractiveGBA will be Chinas leading region in carbon reduction and air quality:The Paris Agreement,air pollution and energy efficiency pressure,and GBAs power tariff affordability the highest in China all point to GBA becoming Chinas leader in its decarbonization strategy.We expect clean energy to be 80%of GBAs installed capacity by 2035,far ahead of Chinas average of 65%.GBAs plan to reduce coal:GBA has 32GW of coal power capacity today and plans a 31%reduction by 2035,to 22GW.Excluding coal,nuclear and imported hydropower are the most competitive energy sources vs.gas and offshore wind.We expect increases of 180%in nuclear and 50%in hydropower imports.WHATS CHANGEDFromToHK Electric Investments(2638.HK)Price TargetHK$7.00HK$8.60RatingEqual-weightOverweightCK Infrastructure Holdings Ltd(1038.HK)RatingNAEqual-weightPrice TargetNAHK$54.00Power Assets Holdings Ltd(0006.HK)Price TargetNAEqual-weightRatingNAHK$57.00CGN Power Co.,Ltd(1816.HK)RatingUnderweightOverweightPrice TargetHK$1.80HK$2.52China Yangtze Power Co.(600900.SS)Price TargetRmb18.00Rmb20.00HuanengLancang River Hydropower Inc(600025.SS)Price TargetRmb4.39Rmb4.50M4M Contents 5The Fundamental Backdrop 6Key Conclusions 8Summary of Stock Ideas14China:Guangdong GBA Action Plan 2018-2020 and China Southern Grid Power Industry Planning to 203523Nuclear Long-awaited Renaissance from 2020 25Hydropower Goes Further West from Yunnan to Tibet27Cutting Coal and Replacing It with Gas and Offshore Wind Expensive Options Unlikely to Replace Baseload Demand32Hong Kong:The Path to Decarbonization37Electricity Generators in Hong Kong CLP Holdings and HK Electric Investments41CGN Power Double Upgrade to OW from UW47CGN Power Changes in Key Assumptions and Earnings Estimates 49 CGN Power Valuation Methodology51CGN Power Financial Summary 52Huaneng Hydro Maintain EW Rating 55Huaneng Hydro Changes in Key Assumptions and Earnings Estimates 58Huaneng Hydro Valuation Methodology60 Huaneng Hydro Financial Summary61China Yangtze Power Company Maintain OW Rating63China Yangtze Power Company Financials and Earnings Estimates65China Yangtze Power Company Valuation Methodology67China Yangtze Power Financial Summary68 CLP Holdings Maintain EW Rating 69 CLP Holdings Changes in Earnings Estimates70 CLP Holdings Valuation Methodology72CLP Holdings Financial Summary73HK Electric Investment Upgrade to OW from EW74HK Electric Investments Changes in Earnings Estimates75HK Electric Investments Valuation Methodology77HK Electric Investments Financial Summary 78CK Infrastructure Holdings and Power Assets Holdings Resuming Coverage at EW82CKI and PAH Changes in Earnings Estimates83CKI and PAH Valuation Methodology87CK Infrastructure Holdings Financial Summary88 Power Assets Holdings Financial Summary89 Appendix 1:Power Exports from Western to Eastern China90 Appendix 2:Guangdong Power Exchange and Market Power SalesMMORGAN STANLEY RESEARCH5M Greater Bay Area(GBA)development plan energy section:China aims for the Greater Bay Area 1 to become an international first-class bay area for living,working,and traveling,with an emphasis on a green,low-carbon,and sustainable ecological system.We believe GBAs power system,which accounts for 50%of emissions,is essential for GBA to increase green energy utilization,improve air quality,and promote a low-carbon lifestyle.Why GBA will be Chinas leading region in air quality and carbon reduction:We believe GBA has the potential to lead Chinas various regions in air quality,green power utilization,and carbon reduction,in order to support its ambitious aim to become one of the most liv-able bay areas in the world.1.Aggressive target:Guangdong announced a ban on new coal power plants in 2018.It raised its 2020 gas utilization plan and approved 10GW of additional gas IPP capacity.2.Already the leader:In 2018,the Pearl River Delta had the lowest PM2.5 emissions among regions in China and the highest utilization of clean energy.Shenzhen is the first Chinese city to set an air quality target by 2030 in line with the United Nations benchmark.3.Availability of resources:With its ports and coastal areas,GBA has the best access to imported fuel(LNG)and offshore gas fields in the South China Sea.GBA also has the highest proportion of imported clean energy among regions in China,thanks to proximity to Southwest China(Yunnan)and future access to Tibetan hydropower.GBA also has the best access to offshore wind on the Guangdong coastline and the highest penetration of nuclear power,as home to Chinas first com-mercial nuclear station.4.Affordability:Guangdong and Shenzhen are the province and city with the highest end user power tariffs in China.Power tariffs in HK were 23%higher than in Shenzhen in 2017.GBAs high power tariff affordability should allow higher utilization of green energy,including nuclear,imported hydro,gas,and offshore wind.1 The Greater Bay Area refers to the Chinese governments plan first raised in 2009 to link the cities of Hong Kong,Macau,Guangzhou,Shenzhen,Zhuhai,Zhongshan,Foshan,Dongguan,Jiangmen,Huizhou,and Zhaoqing into an integrated economic and business hub.The Fundamental Backdrop Requirements under the Paris Agreement for China and Hong Kong and why timing is imminent:Under the Paris Agreement of 2015,all countries need to draw up their own mid-century(2050)long-term development strategy for low greenhouse gas emissions by 2020,with a view to holding the increase in global temperature below two degrees.China and the Hong Kong Special Administrative Region(as part of China)will have to present their own decarboniza-tion strategies in 2020(countries to submit updated climate pledges).We expect both China and Hong Kong will need to finalize their public consultation process and related strategies before the end of 2019/early 2020.GBAs progress on air quality/carbon reduction:China officially announced Greater Bay Area planning in February 2019,while Guangdong announced its 2018-2020 GBA Action Plan in July 2019.China Southern Power Grid(CSPG)has initiated long-term power planning and analysis for GBA and published a report in June 2019.By 2020,GBA aims for PM2.5 of Rmb665/MWh makes it more suit-able for peaking instead of baseload.Plus,gas power also emits 50%of the carbon that coal power does.lBiomass is small.Guangdong is not focused on agriculture.lGuangdongs onshore wind and solar resources rank in the bottom quartile among provinces in China.lImported hydropower from Yunnan is competitive but resources are exhausted,and future hydropower from Tibet will cost Rmb600/MWh.lOffshore wind is available in Guangdong,but we think its high Rmb800-850/MWh tariff and intermittent nature make this form of renewable energy less common in GBA vs.other regions.Exhibit 3:Guangdong:Power tariffsPowerSourceRmb/kWhNuclear GII0.430 NuclearGIII0.435 HydropowerYunnan0.390 HydropowerTibet0.600 GasGuangdong0.700 WindOnshore0.520 WindOffshore0.850 Source:NDRC,Morgan Stanley ResearchMMORGAN STANLEY RESEARCH7MWhy Hong Kong needs to connect power with GBA/Guangdong:Under the Paris Agreement,Hong Kong has to reduce per capita carbon emissions from 5.7 tonnes to at least 2 tonnes.The HK govern-ments report suggests that by 2050,80%of Hong Kongs power needs to come from clean energy(gas excluded because it emits 50%of the carbon that coal does)and wind,solar,and biomass can supply only 3-4%of power demand.Hong Kong does not have hydropower or nuclear,so we believe imports from Guangdong/GBA are the only viable option.CLP is already connected with Guangdong,and with its interconnection to be upgraded probably by 2025,we project that CLP will increase nuclear power imports from 1.85GW to 2.35GW and advance HKs 2030 carbon target by five years.We expect HKEI to build an undersea power line with Shenzhen,potentially with CSG and/or Ling Ao nuclear power plants after 2030.Exhibit 4:Hong Kong:Illustration of Paris Agreement Source:CLP Holdings,Morgan Stanley Research M8MExhibit 5:Summary:Order of preferenceCGN Power(H)HK Electric Investments(H)China Yangtze Power Company(A)Huaneng Lancang River Hydropower(A)CLP Holdings(H)Power Assets Holdings(H)CK Infrastructure Holdings(H)1816.HK2638.HK600900.SS600025.SS0002.HK0006.HK1038.HKRatingOWOWOWEWEWEWEWTrading CurrencyHKDHKDCNYCNYHKDHKDHKDPrice Target 2.52 8.60 20.00 4.50 85.00 57.00 54.00 Closing Price as of 9 Oct 20191.937.3418.474.4079.6052.5052.60Upside/(Downside)(%)31%17%8%2%7%9%3%Market Cap(in USD mm)12,683.2 8,347.7 57,027.1 11,429.7 26,058.2 14,693.5 17,141.7 Avg Daily Traded Vol(in USD mm)8.6 4.5 49.9 20.2 35.7 24.8 14.0 Valuation Multiples at Last CloseFY19eP/B0.9x1.4x2.7x1.7x1.9x1.3x1.1xP/E8.3x26.2x17.9x16.0 x18.7x16.1x14.4xEV/EBIT 14.7x27.7x15.7x16.5x15.8x16.0 x14.9xEV/EBITDA9.9x15.2x11.6x10.4x9.9x14.6x14.4xEV/Sales4.9x10.5x9.2x8.8x3.0 x71.8x23.5xFCF Yield7.1%-1.1%8.4%16.5%4.7%5.8%8.8%Dividend Yield4.8%4.4%3.7%3.1%3.9%5.3%4.7%FY20eP/B0.8x1.4x2.6x1.6x1.8x1.3x1.0 xP/E7.9x24.8x17.1x16.5x18.0 x16.6x14.1xEV/EBIT 13.6x27.0 x15.5x17.1x14.8x16.4x14.4xEV/EBITDA9.4x14.8x11.3x10.3x9.4x15.1x13.9xEV/Sales4.4x10.4x9.0 x8.5x2.8x73.4x23.0 xFCF Yield11.0%-0.5%7.8%8.9%1.2%5.0%6.9%Dividend Yield5.0%4.4%3.7%3.0%4.1%5.3%4.8%Implied Multiples on MS Price TargetFY19eP/B1.1x1.6x2.9x1.7x2.0 x1.4x1.1xP/E10.8x30.7x19.4x16.4x20.0 x17.5x14.7xEV/EBIT 16.0 x30.3x16.8x16.5x16.5x16.9x14.9xEV/EBITDA10.7x16.8x12.0 x10.9x11.2x16.9x14.8xEV/Sales5.4x11.5x9.9x8.8x3.2x75.8x23.5xDividend Yield3.7%3.7%3.4%3.1%3.7%4.9%4.6%FY20eP/B1.1x1.6x2.8x1.6x2.0 x1.4x1.1xP/E10.4x29.1x18.5x16.9x19.2x18.0 x14.5xEV/EBIT 14.8x29.5x16.6x17.1x15.5x17.4x14.4xEV/EBITDA10.2x16.3x11.7x10.9x10.6x17.4x14.3xEV/Sales4.8x11.4x9.7x8.5x2.8x73.4x23.1xDividend Yield3.9%3.7%3.4%3.0%3.8%4.9%4.7%Stock Price Performance1 Month(4.4%)(2.5%)(1.5%)(0.4%)0.2%2.0%0.2%3 Month(10.9%)(7.7%)0.7%6.1%(7.9%)(6.9%)(15.6%)1 Year10.1%(2.0%)19.5%77.2%(8.1%)1.3%(11.2%)YTD5.9%(6.2%)15.7%42.9%(8.6%)(0.9%)(9.2%)Source:Refinitiv,Morgan Stanley Research estimatesSummary of Stock IdeasMMORGAN STANLEY RESEARCH9MWe double upgrade CGN Power to OW from UWWe had an Underweight rating on CGN Power since June 2016 in view of concern about delay in Taishan.Taishan units I/II were supposed to be put into operation in 2017,but this actually took place in 2018/2019,increasing hydropower imports,and nuclear power tar-iffs have not been competitive vs.coal power tariffs.We believe all the risk factors have played out:lAll Taishan units are connected to grids and Taishan tariffs have been approved.lHydropower imports accelerated in 1H19;but nearly reached their peak as almost all Yunnan hydropower capacities were commis-sioned.l Guangdongs aggressive plan to shut down coal power plants means that nuclear power tariffs should be benchmarked to incre-mental new power sources(gas,imported hydro,and offshore wind)instead of coal.lGuangdongs potential new market mechanism would make nuclear power tariff competitive with coal power.In fact,we see signs of a turn:lHydropower resources in Yunnan are weakening in 2H19 with the end of El Nio.This means less growth for hydropower but oppor-tunity for nuclear power.l Nuclear utilization is resilient,and is on an upward trend as hydro-power diminishes.lWe expect power tariff discount in Guangdong to narrow from Rmb65/MWh in 2018 to around Rmb30-40/MWh in 2020.Guangdongs potential change in power bidding may be positive for CGN Power:Guangdong is the only province with coal power tariff higher than nuclear power tariff.With Guangdongs launch of a spot power trading market in 2020,we expect it to change its bid-ding method from tariff discount to absolute tariff from 2020/21 onward.We think CGN Power may benefit because it is disadvan-taged under the current tariff discount.With nuclear on-grid tariff lower than coal-fired powers tariff in Guangdong,nuclears effective tariff could be lower than coal power