Interview: Wind Power Play CONCORD Gets 63% Upside TP

THE STOCK MARKET may be struggling, and China's GDP is waxing sentimental over double digit growth rates of yester-decade, but a new energy sector expert is very bullish on the industry given the ongoing depletion of hydrocarbons and strong support from Beijing.

Ms. Shi Yan, analyst with UOB Kay Hian, recently initiated coverage of Concord New Energy Group Ltd (00182), calling it a "fast growing wind play," and assigned it with a "Buy" recommendation.

"We base our call on: a) highest earnings growth potential of 30% CAGR backed by a 26% CAGR in capacity expansion in 2016-18, b) improving earnings visibility and quality, and c) cheapest valuations at 0.5x 2017F P/B and 4.3x 2017F PE.

"We expect a re-rating since it has transformed into a renewable utility since 2015, giving it a target price of 0.70 hkd (representing a 62.8% upside)."

As a major player in China's wind power sector, the decision to initiate coverage was a logical and strategic move.

"In short, I think it's a good company.

"That is the only reason we began coverage," Ms. Shi told Asia Fund Space.. 

Concord New Energy, formerly China Wind Power, was previously an EPC company.

From 2012-13, after acquiring experience and strong cash flow from EPC services, the company began transforming into a wind and solar power utility company and developed power generation plants independently.

In 2015, earnings contribution from renewable power generation already accounted for two-thirds of total EBIT.

Although the leadership in Beijing was somewhat unpredictable in terms of pinning down the timing of regime shifts, the Shanghai-based analyst was certain that the pro-green policies of the PRC leadership would continue to renew themselves on calling for greater use of renewable.

"I think the Chinese leadership will maintain its pro-environmental policies because air, water, and other forms of pollution are worldwide concerns over the long-term," Ms. Shi told Asia Fund Space.

Last year, Concord underwent a shareholding shakeup, with Mr. Liu Shunxing becoming the effective controlling shareholder by taking shares from the previous shell holder.

Backed by the strong industry background of its management team, UOB believes Concord will grow its earnings from the renewable energy business rapidly.

Both analysts and electric vehicle manufacturers alike have recently been nervously eying an eventual -and likely imminent -day when subsidies for the industry are scheduled to be grandfathered out.

However, there was little overlap in this regard between China's two main renewable energy platforms and EVs.

"I do not think wind or solar has to worry about this.

"They are different sectors, and in fact wind power equipment manufacturers are making profits now," Ms. Shi told Asia Fund Space. 

Concord itself remains relatively diverse, and thus quite immune from overexposure to any one sector.

As of end-2015, the company had 1.2GW equity capacity, of which 60% was wind power and 40% was solar power.

The newly-added capacities in 2016-18 are about 420MW, 400MW and 400MW, with two-thirds being wind and one-third being solar power, respectively.

By end-2018, total installed capacity will be 2.5GW, representing a CAGR of 26%, which is much higher than the industry's 15-20%.

"Apart from a low-base effect, its highest capacity growth is also due to the company's capability to win new projects, and the company has rich project reserves with 28GW of wind power and 8GW of solar power projects.

"Each year, there are about 800-1000MW of projects to be approved, which could enable the company to selectively develop projects with higher returns for itself and the remaining to be constructed for its partner, Huadian Fuxin."

Residential and commercial properties are increasingly relying on distributed solar power -i.e. rooftop photovoltaic panels -to directly convert sunshine into electricity to meet local energy needs.

However, wind power needs much larger generating facilities - and rotors -and thus is seen by many to have a weakness vis-a-vis solar in this regard.

"Despite this difference, I do not think solar is a better bet in the near-term given its higher cost versus wind," Ms. Shi told Asia Fund Space.

Concord New Energy Group Ltd specializes in wind power electricity generation. The Company's principle businesses include wind farm investment and operations, and manufacturing of wind power equipment. Concord New Energy also provides wind power electricity generation services such as feasibility studies, technological consultation, power plant design, engineering, 

(Note: This story is contributed by Andrew Vanburen. Mr. Vanburen has served as a
government official focused on international trade at the American Institute of Taiwan in
Taipei, and worked in financial journalism for nearly a decade in both Beijing and
Shenzhen. He holds a Master's Degree from New York University. He is currently Director at
Hong Kong-based Asia Fund Space. For more information, please visit:
www.asiafundspace.com)