China Power Int'l (2380) : China IPPs' asset injection has started

14 October 2013

A value-accretive asset injection; 4% EPS accretion
CPI announced today that it will acquire two coal fired power plants
(2x630MW) in Wuhu, Anhui Province from its parentco. for Rmb1.45bn. 85%
of the payment will be settled through the issue of new shares and the
remaining 15% (Rmb217.5mn) through cash payment. The acquisition will be
subject to approval from the independent shareholders. Post the acquisition,
CPI’s attrib. capacity will increase from 12.9GW to 14.3GW.

We believe the acquisition price looks attractive given it is only 4.5x FY13E P/E
based on annualized 1H13 earnings. Though P/B is at 1.9x, 1H13 annualized
ROE was 43%. After accounting for c.9% dilution from the share placement,
we estimate a 4% FY14 EPS accretion from the asset injection.


First IPP to kick start the asset injection process
As we mentioned in our big FITT report in Nov 2012 “Asset injection back on
the agenda”, we believe the asset injection theme will act as a key driver for
the sector in the years to come in view of 1) a conducive regulatory
environment that aims to resolve horizontal competition between parentcos
and listcos, 2) improving asset quality under ownership of parentcos following
a sharp coal price decline in 2012, 3) recovering stock valuation and improving
market sentiment, 4) slowing organic capacity growth, and 5) the sheer size of
available assets given the existence of large parentcos. Among the IPPS, we 
see the biggest upside for Huaneng (Buy, HKD8.08) and CPI. 

CPI’s announcement of the asset injection will be the first of many to come, in
our view. It still has several other prospective candidates including Qinghe in
Liaoning, Yellow River Upstream and Shanghai Power. In addition, investors
can gain some comfort that they are unlikely to be overpaying given the
attractive proposed transaction price for CPI.


Deutsche Bank Markets Research

Stock data
Market cap (HKDm) 15,372
Market cap (USDm) 1,982
Shares outstanding (m) 6,686.3
Major shareholders CPI Holding
(64.1%)
Free float (%) 35.9
Avg daily value traded
(USDm)
6.4
Source: Deutsche Bank
Key data
FYE 12/31 2012A 2013E 2014E
Sales (CNYm) 17,497 19,209 22,629
Net Profit
(CNYm)
1,181.1 1,991.5 2,106.7
DB EPS (CNY) 0.199 0.298 0.315
PER (x) 8.1 8.0 7.5
Yield (net) (%) 6.9 7.7 8.3
Source: Deutsche Bank