China Suntien Green Energy Earnings: No Major Surprises; Shares Undervalued

We lower no-moat China Suntien Green Energy’s 00956 fair value estimate to HKD 3.66 from HKD 3.92 after considering the latest operating data and depreciation of China’s yuan. Trading at 2023 price/earnings of around 6 times, we think the shares are attractive currently, supported by decent five-year net profit CAGR of 9.5% and over 7% dividend yield.

Suntien’s first-half 2023 net profit fell 11% year on year to CNY 1.4 billion. Although this accounted for more than 70% of our full-year forecast, we deem the results as largely within expectations as it was in line with historical trend during 2021-22. However, we think Suntien’s near-term share price performance may be capped by concerns on the profit decline. First-half earnings for the renewable energy (wind and solar) segment fell by 8% year on year despite a 2% rise in power generation, mainly due to falling average tariffs and higher income tax. Meanwhile, the natural gas segment saw earnings drop by 48% year on year due to the lower gas sales volume and dollar margin. The renewable energy segment is the main earnings contributor, making up more than 70% of first-half pretax profit.

Overall, we think Suntien’s falling average tariffs—which reflect higher power trading volume—were in line with peers such as China Longyuan and Datang Renewable. For natural gas, we also saw other city gas utilities deliver weak gas sales volume growth due to the economic slowdown. Nonetheless, we remain confident in Suntien’s long-term outlook. Suntien plans to realize renewable installed capacity of 10 GW and natural gas transmission volume of 8.3 billion cubic meters by the end of the 14th Five-Year Plan period. We think Suntien will be able to achieve its renewable capacity goal and we also expect the Tangshan LNG phase I project and supporting gas transmission pipeline projects to help Suntien to increase its transmission volume.