摩根士丹利-中国-能源行业-中国清洁能源：如果实施新的补贴支付制度会怎样？-2019.8.9-51页 (2).pdf

Simon.LEva.HAttractiveMORGAN STANLEY ASIA LIMITED+Simon H.Y.Lee,CFAEQUITY ANALYST+852 2848-1985Eva HouEQUITY ANALYST+852 2848-6964China UtilitiesAsia PacificIndustryViewChina Clean EnergyChina Clean Energy|Asia Pacific Asia PacificWhat if a new subsidy paymentsystem is implemented?We believe a new system would likely slow down subsidypayments to wind,but speed up payments to solar.WHATSCHANGED China Suntien Green Energy Co.,Ltd.(0956.HK)FromToPrice TargetHK$2.98HK$2.75CGN New Energy Holdings(1811.HK)Price TargetHK$1.75HK$1.20Huaneng Renewables(0958.HK)Price TargetHK$2.80HK$2.10China Longyuan Power Group(0916.HK)Price TargetHK$6.60HK$5.00Potential changes in payment system:We believe the Chinese government isconsidering potential changes to the subsidy payment system.Currently,all windand solar farms are eligible to receive subsidies only after inclusion in theMinistry of Finances catalog system.So far,the first seven batches of projectshave been announced.What if it happens why,when and how?The current system usescommissioning dates as cut-off points;for example,batches 1-7 includedwind/solar projects commissioned before March 2016.We estimate that only69%of wind and 25%of solar capacity as of 2018 was included.If the newsystem is implemented,with removal of the catalog,we can see all installedcapacity becoming equally eligible,which would likely speed up solar payments,but slow down wind payments.The new policy may be announced in 2H19.Wind IPPs will likely report increased subsidy receivables in the future:In 1Q19,wind IPPs reported 32-47%yoy increases in accounts receivable balance,due tothe deficit in Chinas Renewable Energy Fund(REF).Coupled with removal of thecatalog,existing wind capacity may see a further slowdown in subsidy payments.Peak of renewables subsidies to happen only in 2025:Contrary to the marketsexpectation that subsidies for renewables will peak in 2021,due to the rush ininstallation of onshore wind in 2019/20 and offshore wind in 2019-21(with unitsubsidies 3x higher than for onshore),we do not expect subsidies to peak until atleast 2025.Most negatives priced in,but cutting PTs due to prolonged A/R;Suntien shiftsfrom wind to gas:We cut our PTs for all wind IPPs,due to a prolonged period ofrising accounts receivable(A/R).We remain OW on Suntien,as it has announced athreefold increase in gas capex in 2019,and we expect its gas earnings will grow50%in the next three years.We expect the market will re-categorize the stockfrom a wind IPP to a gas company.We remain EW on Longyuan and Huaneng(HNR),due to their rising A/R balances.Morgan Stanley does and seeks to do business withcompanies covered in Morgan Stanley Research.As aresult,investors should be aware that the firm may have aconflict of interest that could affect the objectivity ofMorgan Stanley Research.Investors should considerMorgan Stanley Research as only a single factor in makingtheir investment decision.For analyst certification and other important disclosures,refer to the Disclosure Section,located at the end of thisreport.+=Analysts employed by non-U.S.affiliates are not registered withFINRA,may not be associated persons of the member and may notbe subject to NASD/NYSE restrictions on communications with asubject company,public appearances and trading securities held bya research analyst account.1August 9,2019 10:00 AM GMT Order of PreferenceExhibit 1:Order of Preference:Wind IPPsSuntienCGNNEHNRLongyuan0956.HK1811.HK0958.HK0916.HKRatingOWOWEWEWTrading CurrencyHKDHKDHKDHKDPrice Target2.751.202.105.00Current Price2.141.012.004.70Upside/(Downside)(%)29%19%5%6%Market Cap(in USD mm)1,018.2555.02,706.34,837.1Avg Daily Traded Vol(in USD mm)1.60.25.58.6Valuation Multiples at Last CloseFY19eP/B0.5x0.5x0.5x0.6xP/E4.6x5.6x4.9x6.1xEV/EBIT12.1x14.0 x10.6x11.8xEV/EBITDA8.0 x8.4x6.6x6.6xEV/Sales2.7x2.5x5.7x4.6xDividend Yield8.2%4.4%2.5%2.9%FY20eP/B0.6x0.6x0.6x0.7xP/E4.2x5.4x4.6x6.3xEV/EBIT12.5x14.1x10.8x11.3xEV/EBITDA8.1x8.2x6.6x6.3xEV/Sales2.5x2.5x5.8x4.5xDividend Yield8.9%4.6%2.7%3.2%Implied Multiples on MS Price TargetFY19eP/B0.7x0.6x0.6x0.7xP/E6.0 x6.8x5.2x6.6xEV/EBIT13.0 x14.5x10.8x12.1xEV/EBITDA8.6x8.7x6.7x6.7xEV/Sales2.9x2.6x5.9x4.7xDividend Yield6.4%3.7%2.4%2.7%FY20eP/B0.8x0.7x0.6x0.8xP/E5.5x6.5x4.9x6.8xEV/EBIT13.3x14.5x11.0 x11.5xEV/EBITDA8.6x8.5x6.8x6.5xEV/Sales2.7x2.6x5.9x4.6xDividend Yield6.9%3.9%2.6%3.0%Stock Price Performance1 Month4.4%(6.5%)(7.4%)(6.0%)3 Month(8.9%)(17.9%)(9.5%)(12.5%)1 Year(9.3%)(27.3%)(29.6%)(32.8%)YTD5.9%(6.5%)(4.8%)(11.8%)Source:Company data,Morgan Stanley Research.e=Morgan Stanley Research estimates.Prices as of the close on August 9,2019.2Source:Company data,Morgan Stanley Research.e=Morgan Stanley Researchestimates.Exhibit 2:Whats Changed?Whats Changed?EPSEPSRatingPT unitsPTUnits2019E2020E2021ESuntienNewOWHKD2.75Rmb0.410.450.460956.HKOldOWHKD2.98Rmb0.390.45%differences-7.7%5.9%-1.1%CGN New Energy NewOWHKD1.20 US$cents2.302.392.721811.HKOldOWHKD1.75US$cents2.602.75%differences-31.4%-11.4%-13.1%HNRNewEWHKD2.10Rmb0.360.380.420958.HKOldEWHKD2.80Rmb0.320.35%differences-25.0%13.2%9.7%LongyuanNewEWHKD5.00Rmb0.600.660.730916.HKOldEWHKD6.60Rmb0.560.62%differences-24.2%6.7%5.9%3 Implications of a change in the subsidy payment systemPotential removal of the catalog system would likely give relief to existing solarfarms,but at the detriment of existing wind farmsHow does the current subsidy payment system work?Under the renewable energy law,all approved wind/solar power plants are equally eligible for subsidies.However,underthe current administrative procedures,the Ministry of Finance(MoF),from time to time,will announce batches of renewable projects to be included in subsidy catalogs,andonly projects included in the batches of catalogs will receive subsidies.To date,the MoFhas announced batches 1-7,and around 69%wind and 25%of wind and solar powercapacity as of end-2018 were included conversely,31%of existing wind power and75%of solar farms were not included.What has been reported so far?On July 31,2019,solar media(PVMen)reported apotential change to the system.And on August 1,Concord New Energy(0182.HK,notcovered)in its 1H19 results conference call said that a change in approach might beconsidered by the government.How likely is it that the change will happen?We think the possibility of this changeoccurring is high;we see the rationale behind such a change as follows:1)Removal procedural inequality We believe that all approved wind/solar projectsupon becoming operational should be eligible for subsidy.However,under the currentprocedure,old projects(commissioned before March 2016)receive subsidies,while newprojects(commissioned after March 2016)are not.2)Speed up secondary asset transfer market We understand that,due to financingpressure,some wind/solar farms owners want to sell down their assets.The removal ofthe catalog would mean that all operating farms were equally eligible for subsidies(despite delays),and this would improve transparency on asset pricing.3)Speed up payments for solar power In June 2019,the MoF announced a totalsubsidy payment of Rmb86.6b for 2019,including Rmb41.1b for wind,Rmb40.5b forsolar,and Rmb4.9b for biomass and power grids.We note that these numbers accountfor only those projects included in the first seven catalog batches.We estimate that ifwe were to include all existing wind/solar farms(i.e.,184GW wind and 174GW solar),asmuch as Rmb166bn in subsidy would be required,including Rmb68bn for wind,Rmb79bn for solar,and Rmb22bn for biomass/grids.How would the distribution of subsidies change?For 2019,we estimate the actualdistribution of subsidies among the three energy segments will be wind(47%),solar(47%)and biomass(6%).Under the new system,we estimate the distribution of subsidieswould shift to wind(41%),solar(48%)and biomass(11%).Effectively,there would beless allocation to wind and more allocation to solar and biomass.4What is the new system missing?We believe the new system,if it happens,wouldsimply be a redistribution of subsidy payments,which is Rmb86.6bn in 2019,amongwind/solar/biomass.The new system would not provide additional cash flow to thesubsidy fund.Stock ImplicationsWind Operators(negative,but mostly priced in)We believe any potential changewould be negative for listed wind operators,but is mostly already reflected in valuation.The group has underperformed the MSCI China by-4%-20%YTD in 2019,as investors ingeneral lost patience with the sector due to no improvement in the subsidy situation,and P/B is trading at a 3-year low.Having said that,we would expect the initial marketreaction to the news to be negative,as we believe investors in general have beenexpecting either the status quo to continue(i.e.,A/R days remain steady)or thegovernment to have announced a solution to the subsidy deficit.Neither is likely happenin the near term,in our view.Exhibit 9 shows our expectation that the A/R balance will increase in the next 2 years.FCF will likely turn negative in 2019 and 2020 due to rushed installations and largeincreases in capex.We now expect that for each dollar of subsidy revenue,only aroundExhibit 3:2019 actual distribution of subsidieswindsolarbiomassSource:Morgan Stanley Research estimatesExhibit 4:Subsidy distribution under new systemwindsolarbiomassSource:Morgan Stanley Research estimatesExhibit 5:Our estimates of REF deficit 2015-2020E-20,00040,00060,00080,000100,000120,000140,000160,000180,000200,000-20,00040,00060,00080,000100,000120,000140,000160,000180,000200,00020152016201720182019E2020ESubsidy demand-LHS(Rmb b)Subsidy supply-LHS(Rmb b)Rptd.REF deficit-RHS(Rmb b)Est.REF deficit-RHS(Rmb b)Source:NEA,Morgan Stanley Research,E=Morgan Stanley estimatesExhibit 6:National percentage covered in the first through sixthbatches of renewable subsidies vs.2016 and 2018 wind/solarinstallationsBatchAnnouncementdateDocumentdateApplicable installedcapacity(Gridconnection prior to)Wind(GW)Solar(GW)Biomass(GW)1st16-Jun-1212-Jun-129.140.010.762nd26-Oct-1221-Sep-1213.460.750.813rd7-Jan-1322-Nov-1211.401.001.914th8-Mar-1326-Feb-1318.032.281.935th5-Sep-1421-Aug-14end-Aug 20139.053.141.446th23-Sep-1624-Aug-16Aug 2013-Feb 201531.7119.522.637th15-Jun-1811-Jun-18end-Mar 201633.8617.291.408thEst.:end-Jun 20181st-6th Total approved installed capacity92.7926.709.481st-7th Total approved installed capacity126.6543.9910.882016 Total installed capacity148.6477.4212.002017 Total installed capacity164.00130.0014.882018 Total installed capacity184.00174.0017.81%Covered in 1st-6th subsidy catalogue(vs.2016 total cap.)62%34%79%Covered in 1st-7th subsidy catalogue(vs.2018 total cap.)69%25%61%Earliest by Jan 2019Source:NEA,Morgan Stanley Research540%could be received in the same year,with the remaining 60%going to accountsreceivables.Wind Equipment Makers(neutral)A delay in subsidy payments to wind operatorswould likely have no direct impact on wind equipment makers,such as Goldwind.Theoretically,as the cashflow position of wind operators deteriorates,they could passthis pressure on to their suppliers,the wind turbine makers.However,this is unlikely tohappen due to rushed installations planned for 2019/2020,which has shifted thebargaining power to wind turbine makers,as witnessed by the recent rebound in ASP ofwind turbine tenders and a full production schedule of leading wind turbine makerssuch as Goldwind.For details,please see our report,China Wind Equipment:A NewChapter in Chinas Wind Industry(July 9 2019).Exhibit 7:Snapshot of how the market is pricing in the new systemCompanyWhats in the priceWhats the market missing?SuntienRising A/R,but expectation of anultimate solution soonSuntien will cut wind capex and grow gasbusiness earnings by 50%in next few yearsCGN New EnergyRising A/R,but expectation of anultimate solution soonCGNNE will sell down Korean power plantsand receive Rmb3b cash back;Potentialparent asset injectionHNRRising A/R,but expectation of anultimate solutionWe remain Equal-weight and see the stock asfairly valuedLongyuanRising A/R,but expectation of anultimate solutionWe remain Equal-weight and see the stock asfairly valuedSource:Morgan Stanley ResearchExhibit 8:New estimates vs.old estimates2019e2020e2021e2019e2020e2021eSuntien(Rmb mn)A/R-Old4,1955,0185,038A/R-New4,3855,3365,491OCF-Old2,2352,5563,176OCF-New1,6081,9693,096FCF-Old(177)2,7793,612FCF-New(2,111)(92)3,930CGN New Energy(USD mn)A/R-Old378436429A/R-New383437434OCF-Old222246325OCF-New278221304FCF-Old(82)(49)351FCF-New(380)(70)313HNR(Rmb mn)A/R-Old10,61211,86911,928A/R-New12,62414,35316,238OCF-Old8,3409,02510,955OCF-New7,6429,20410,157FCF-Old4,7212,4779,070FCF-New(5,399)(3,487)6,904Longyuan(Rmb mn)A/R-Old13,00316,14719,495A/R-New14,38118,17821,688OCF-Old12,75514,61815,802OCF-New11,87614,49516,226FCF-Old58343011,768FCF-New(275)(1,335)11,768Source:Morgan Stanley Research estimates6 No near term solution in sight for the renewable subsidy deficitWe do not see any single way to resolve the renewable subsidy deficit at themoment.We expect the subsidy fund to peak in 2025 and the annual deficit topeak in 2022.We estimate the annual renewable energy fund(REF)deficit will amount to Rmb80-90bn in 2019,and Rmb160-180bn on an accumulated basis by the end of 2018:TheRenewable Energy Subsidy Fund was officially founded in 2011 after renewable energycharges had been collected since June 2006.The objective of the REF is to subsidizewind,solar and biomass IPPs,taking into consideration differences in direct powergeneration and construction costs(vs.the coal benchmark tariff).Since 2006,however,the REF deficit has been snowballing due to 1)the mismatchbetween renewable power generation and total domestic power consumption,2)therelatively longer duration required for REF surcharge adjustments,given the timeneeded to fit project investment costs with the benefits derived from advances intechnology and developments in the industry,and 3)the absence of consideration ofthe external costs borne ecologically/environmentally through fossil fuelcombustion/consumption.The problem worsened considerably during 2014-15(seeExhibit 14)when the coal benchmark tariff fell in response to the decline in domesticand international fossil-fuel prices but the wind/solar benchmark tariff was unchanged.Based on our estimates,the REF has an annual deficit of Rmb8090bn in 2019,and anaccumulated deficit of more than Rmb160-180bn.Renewable energy subsidies havebeen overdue by 19-36 months.Surge in A/R reported by wind IPPs and what had been reported so far:All wind IPPsreported a surge in A/R balance for Q1-19,ranging from 32-47%yoy and 16-28%qoq.WeExhibit 9:Historical trend:REF Surcharge24815190246810121416182030-Jun-061-Nov-091-Jan-1225-Sep-131-Jan-16Historical REF Surcharge(in Rmb/MWh)Source:NDRC,Morgan Stanley ResearchExhibit 10:Inflow of Power SurchargesInflow(Rmb b)20172018YoYMajor national water conservancy construction fund31.0221.37-31%Central rural power network repayment fund14.2815.206%Central reservoir migration support fund27.4722.14-19%Renewable energy