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BUY Renewable Energy Asia
Company Update Going through transition
Analysts Event
Eric ONG
ericong@kimeng.com
Renewable Energy Asia (REA) has entered into a term sheet with the
(65) 6432 1857 Executive Director, Lam Tak Shing to dispose of its fastening business
for $7.6m. We believe this is a move in the right direction that will
allow REA to consolidate its resources in the core renewable energy
Price $0.255
business. We maintain BUY with a new target price of $0.35, now
Target $0.350
pegged at 11x FY Mar12F PER.
ST Index 3,238.63
Our View
Historical Chart The total consideration for the proposed disposal amounts to about
$7.6m. This represents a discount of 12.5% to the NTA of its Fastening
Pri ce ($) Vol ('000)
0.40 50,000 Companies as at end‐March 2010. Given a possible loss of RMB5.1m
0.35 40,000
that will be charged to the income statement, we have tweaked our
0.30 30,000
0.25 20,000
FY Mar11 earnings estimate by 19% to RMB39.5m.
0.20 10,000 The disposal is subject to approval by the shareholders. If they give
0.15 0
the nod, the deal will be sealed and REA can then focus on its core
25‐Oct‐10
15‐Mar‐10
12‐Apr‐10
10‐May‐10
02‐Aug‐10
30‐Aug‐10
22‐Nov‐10
18‐Jan‐10
15‐Feb‐10
07‐Jun‐10
05‐Jul‐10
27‐Sep‐10
20‐Dec‐10
17‐Jan‐11
renewable energy business. The sale proceeds will also come in
handy as the cash can be deployed to develop its wind farm projects.
Performance 1m 3m 6m
Absolute (%) 30.8 8.5 ‐7.3
Separately, REA has secured a concession to develop a 49.5MW wind
Relative (%) 27.3 6.6 ‐15.3 farm in Binhai New Area, China. Land and infrastructure resources for
the project will be provided by the Jiangsu provincial government.
Stock Information REA, which owns a 49% stake, and Datang Renewable, its JV partner,
will be responsible for the construction and subsequent maintenance
Ticker code REA.SI of the wind farm. The total capex is estimated to be RMB500m, of
REAG SP
which 80% will be funded through bank borrowings.
Market cap (US$m) 122.8
SEE APPENDIX I FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS
Co. Reg No: 198700034E
MICA (P) : 090/11/2009
Renewable Energy Asia 18 January 2011
Target multiple lowered on sector de‐rating
We note Datang Renewable’s (1798 HK) lackluster share price performance after
its Iisting. At HK$2.06, the stock is still trading almost 12% below its offer price of
HK2.33, which values it at 25.0x FY10 and 11.6x FY11 PER. With investors
shunning wind power companies on concerns about overcapacity and lack of grid
connections in certain remote areas, we believe REA warrants a discount,
especially given its smaller size and shorter track record.
As a result, we trim our target price to $0.35 from $0.40. This pegs the stock at
11x FY Mar12F PER, which is still at a discount to its Hong Kong‐listed peers.
Nevertheless, we maintain our BUY recommendation as forward valuation
appears undemanding at the current level.
Figure 1: Peer comparison
Local Mkt cap PER (x) ROE P/B Div yield
Company Ticker price (US$m) FY10 FY11 FY12 (%) (x) (%)
China Longyuan 916 HK HK$7.26 2,530.7 25.3 18.3 14.4 8.0 1.9 0.6
China Windpower 182 HK HK$0.78 741.4 17.7 11.8 8.2 9.7 1.6 0.0
Datang Renewable 1798 HK HK$2.06 662.6 25.0 11.6 7.6 7.6 1.1 0.0
Xinjiang Goldwind 2208 HK HK15.62 1,004.4 14.6 12.5 10.8 25.7 2.5 1.6
Simple average 1,234.8 20.7 13.6 10.3 12.8 1.8 0.6
REA Group REAG SP S$0.255 122.5 18.6 8.1 5.3 27.3 3.1 0.0
Source: Bloomberg, Kim Eng estimates
2
Profit and loss Cash flow
YE Mar (RMB m) 2009 2010 2011F 2012F 2013F YE Mar (RMB m) 2009 2010 2011F 2012F 2013F
Sales 109.0 97.7 505.0 963.8 1369.7 Operating cash flow 28.2 ‐26.8 33.5 85.6 162.7
Cost of goods sold ‐72.8 ‐78.2 ‐399.4 ‐772.9 ‐1101.0 Operating profit ‐9.8 ‐99.9 52.6 120.6 201.3
Depreciation & amortisation 14.8 15.3 17.0 19.0 22.0
Gross profit 36.1 19.4 105.6 190.9 268.6
Change in working capital 18.6 ‐19.9 ‐23.1 ‐32.9 ‐10.3
Operating expenses ‐40.7 ‐113.4 ‐53.8 ‐83.3 ‐103.8
Others 4.5 77.6 ‐12.9 ‐21.1 ‐50.3
Operating profit ‐4.5 ‐94.0 51.8 107.6 164.9 Investment cash flow ‐34.1 ‐12.8 ‐175.0 ‐125.0 ‐75.0
Net interest ‐5.3 ‐5.9 ‐1.6 ‐1.8 ‐2.0 Net capex ‐12.3 ‐12.6 ‐175.0 ‐125.0 ‐75.0
Interest income 0.0 0.0 0.0 0.0 0.0 Change in LT investment 0.0 0.0 0.0 0.0 0.0
Interest expense ‐5.3 ‐5.9 ‐1.6 ‐1.8 ‐2.0 Change in other assets ‐21.8 ‐0.3 0.0 0.0 0.0
Net investment income/(loss) 0.0 0.0 0.0 0.0 0.0 Cash flow after invt. ‐5.9 ‐39.6 ‐141.5 ‐39.4 87.7
Net other non‐op. JV+Assoc. 0.0 0.0 2.4 14.8 38.4 Financing cash flow ‐12.3 39.0 174.1 5.0 ‐35.0
Net extraordinaries 0.0 0.0 ‐5.1 0.0 0.0 Change in share capital 0.0 55.7 145.0 0.0 0.0
Pretax profit ‐9.8 ‐99.9 52.6 120.6 201.3 Net change in debt ‐10.2 ‐12.3 29.5 5.0 ‐35.0
Change in other LT liab. ‐2.2 ‐4.5 ‐0.5 0.0 0.0
Income taxes ‐0.5 0.5 ‐13.2 ‐21.1 ‐50.3
Net cash flow ‐18.3 ‐0.7 32.6 ‐34.4 52.7
Minority interests 0.0 ‐0.4 0.0 0.0 0.0
Net profit ‐10.3 ‐99.7 39.5 99.5 151.0 Source: Company data, Kim Eng estimates
EBITDA 10.3 ‐78.6 68.8 126.6 186.9
EPS (fen) ‐2.0 ‐19.2 6.9 16.0 24.3
Source: Company data, Kim Eng estimates Key ratios
YE Mar 2009 2010 2011F 2012F 2013F
Growth (% YoY)
Sales n.a ‐10.4 417.1 90.9 42.1
Balance sheet Operating profit n.a 1974.7 n.m 107.7 53.3
YE Mar (RMB m) 2009 2010 2011F 2012F 2013F EBITDA n.a ‐865.1 n.m 84.0 47.6
Total assets 227.6 164.7 384.5 514.4 643.9 Net profit n.a 864.6 n.m 152.0 51.8
EPS n.a 864.6 n.m 131.7 51.8
Current assets 58.7 71.2 133.0 156.9 233.4
Cash & ST investment 2.9 4.7 37.1 2.7 55.3 Profitability (%)
Gross margin 33.2 19.9 20.9 19.8 19.6
Inventories 29.9 14.4 30.3 48.2 54.8
Operating margin ‐4.2 ‐96.2 10.3 11.2 12.0
Accounts receivable 22.6 30.3 35.4 57.8 68.5
EBITDA margin 9.4 ‐80.5 13.6 13.1 13.6
Others 3.3 21.8 30.3 48.2 54.8
Net margin ‐9.5 ‐102.1 7.8 10.3 11.0
Other assets 168.9 93.5 251.5 357.5 410.5 ROA ‐4.5 ‐60.5 10.3 19.3 23.4
LT investments 0.0 0.0 0.0 0.0 0.0 ROE ‐11.0 ‐136.4 27.3 34.7 36.7
Net fixed assets 168.9 93.5 251.5 357.5 410.5 Stability
Others 0.0 0.0 0.0 0.0 0.0 Gross debt/equity (%) 49.0 105.7 35.9 26.8 11.3
Total liabilities 133.9 112.2 147.6 177.9 156.5 Net debt/equity (%) 45.9 96.7 20.2 26.0 ‐0.1
Current liabilities 125.6 83.2 115.5 150.9 134.5 Int. coverage (X) ‐0.9 ‐15.9 32.4 59.8 82.4
Int. & ST debt coverage (X) ‐0.1 ‐3.3 0.9 1.7 4.7
Accounts payable 30.5 24.9 28.0 46.4 55.1
Cash flow int. coverage (X) 5.3 ‐4.5 21.0 47.5 81.3
ST borrowings 45.9 28.6 55.0 65.0 35.0
Cash flow int. & ST debt (X) 0.6 ‐0.9 0.6 1.3 4.6
Others 49.2 29.7 32.6 39.5 44.4
Current ratio (X) 0.5 0.9 1.2 1.0 1.7
Long‐term liabilities 8.3 29.0 32.0 27.0 22.0 Quick ratio (X) 0.2 0.7 0.9 0.7 1.3
Long‐term debts 0.0 26.8 30.0 25.0 20.0 Net cash/(debt) (RMB m) ‐43.0 ‐50.8 ‐47.9 ‐87.3 0.3
Others 8.3 2.1 2.0 2.0 2.0 Per share data (fen)
Shareholder's equity 93.7 52.5 237.0 336.4 487.4 EPS ‐2.0 ‐19.2 6.9 16.0 24.3
Paid‐in capital 17.5 69.8 214.8 214.8 214.8 CFPS 5.4 ‐5.2 5.4 13.8 26.2
Reserve 76.2 ‐17.7 21.8 121.2 272.2 BVPS 18.0 10.1 41.6 54.3 78.6
SPS 21.0 18.8 81.4 155.4 220.9
Minority interests 0.0 0.4 0.4 0.4 0.4
EBITDA/share 2.0 ‐15.1 11.1 20.4 30.1
Source: Company data, Kim Eng estimates DPS 0.0 0.0 0.0 0.0 0.0
Source: Company data, Kim Eng estimates
ANALYSTS’ COVERAGE / RESEARCH OFFICES
+15% and above: BUY
‐15% to +15%: HOLD
‐15% or worse: SELL
4
Renewable Energy Asia 18 January 2011
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