Introduction of the company

The Company was jointly established in February 2010 with contribution by HECIC, and it focuses on the sales of natural gas and the development and utilization of wind power in Hebei Province, meanwhile, it is also specialized in the development of other new energy technology. The Company was listed in the Hong Kong Stock Exchange in October 2010.

Summary

-The Company's annual revenue amounted to RMB4.66 billion, up 25.9% y-y, benefited from the sales growth of natural gas and the increase of wind power generating capacity. Net profit reached to RMB460 million, down 16.4% y-y, which was mainly because of the large decrease of net CERs income and the increase of income tax, the profit was lower than our expectation.

-The Company's sales volume of natural gas increased by 19% y-y to 1,484 million cubic meters, and newly added industrial and residential users increased by 21% and 33% y-y respectively, the retail business increased faster while the wholesale business grew stably.

-The power generation of the Company's wind farms reached to 2,927 million KWh in 2013, up 15.8% y-y. Abandoning rate trended to go down nationwide except Hebei Province, representing the effects of the growth of power constraints due to the accelerated construction of new wind power projects. We believe the utilization hours of the Company in 2014 will be lower than that of 2013.

-The construction of the Company's natural gas projects goes smoothly, besides the pipeline construction, there are 2 CNG primary filling stations, 2 CNG refilling stations and 1 LNG refilling station have commenced. The Company has 7 projects in the fourth approved list of the Twelfth Five-year Plan with the amount of 485MW, and Sichuan, Guangxi, and Xinjiang each have one project besides Hebei, and the Company will do the preparations for the preliminary stage of wind power projects in Shandong, Yunnan, and Henan, which means the Company starts to expand the wind power business not only in Hebei but also in the whole country.

-The Company's income tax amounted to RMB158 million in 2013 with the effective tax rate of 18.9%, compared with RMB7 million with the tax rate of 0.92% in 2012, which was mainly because of the expiration of the preferential policies of the Company's natural gas projects, the tax rate will increase to 25%, and there are no duty free treatment for 3 wind farms any more. The income tax rate may continue to go up considering the expiration of the preferential policies of the Company's projects in future.

-Overall, the Company's businesses developed stably, both the sales of natural gas and the wind power operation business maintained the growth between 15% to 20%, and there is stronger consumption demand of natural gas in future due to the industrial structural adjustment in Hebei Province, but the Company also faces the risks in the decrease of wind power utilization hours and the income tax growth. We combine the valuation of the companies in both wind power operation and natural gas sales, give the Company's 12-month target price to HK$3.30, equivalent to 19/15xP/E in 2014E/2015E respectively, and recommend Accumulate rating.

Click Here for PDF format...