Simon.Lee@morganstanley.comEva.Hou@morganstanley.comValena.Hsu@morganstanley.comAttractiveMORGANSTANLEYASIALIMITED+SimonH.Y.Lee,CFAEQUITYANALYST+8522848-1985EvaHouEQUITYANALYST+8522848-6964ValenaHsuRESEARCHASSOCIATE+8522239-7687ChinaUtilitiesAsiaPacificIndustryViewChina–CoalPowerUtilitiesChina–CoalPowerUtilities||AsiaPacificAsiaPacificBuyingopportunityoncoalpriceweaknessStrongrainfall/hydropowerinsoutheasternChinaisdriving~10%yoycoastalcoalpriceweakness–creatingabuyingopportunityattroughvaluations.WHAT'SCHANGEDChinaResourcesPower(0836.HK)FromToPriceTargetHK$17.62HK$15.00HuanengPower(0902.HK)RatingEqual-weightOverweightPriceTargetHK$5.79HK$5.90HuadianPowerInt'l(1071.HK)PriceTargetHK$3.81HK$3.66DatangInt'lPower(0991.HK)PriceTargetHK$2.30HK$2.13HuanengPower(600011.SS)RatingUnderweightEqual-weightPriceTargetRmb4.75Rmb7.02HuadianPowerInt'l(600027.SS)PriceTargetRmb3.12Rmb4.35DatangInt'lPower(601991.SS)PriceTargetRmb2.64Rmb3.44Seasonalandstructuralcoaldemandweakness;coastalcoalpricefell10%yoyin1Q19:WeexpectcoastalChina'scoalpowerdemandgrowthtoslow,duetoenergy-intensiveindustriesmigrating,morepowerimportsandairpollution/coalconsumptioncontrol.TheChinaMeteorologicalAdministration(CMA)expectsrainfalltobestrongerthannormalinsummer2019,duetoElNiño–rainfallin1Q19was17%higherthannormal.WeexpectweakcoalpowerdemandinsouthernandeasternChina,andcheapcoalimports,resultinginweakcoalprices.WenotethattheCCCIfell8.5%yoyinMarch2019,andtheseabornecoalpricefell5-10%yoymorethaninland.Expectnotariffcut;powergridtobearthecost:ChinahasannouncedanotherannualcutinGeneralC&Itariff,by10%,for2019,whichweexpecttoamounttoRmb70-80b.Weexpectthebulkofthesesavingstocomethroughpowergrids'VATreductions(Rmb41b),removalofsurcharges(Rmb21.4b),andfurthercutsfromcostauditsatpowergrids,withnoimpactoncoalpowertariffs.Similarto2018,onlysixprovinceshaveannouncedslightcutsincoalIPPtariffs.Wenotethatrecentlythemarketpowertariffhasrebounded,withtheGuangdongtariffdiscountnowata3-yearlow.(cont'donnextpage)Exhibit1...
