Huaneng Renewables Corp Version6|Bloomberg: 958 HK Equity| Reuters: 0958.HK Refer to Important Disclosures at the End of This Report

China / Hong Kong Company Guide

Huaneng Renewables Corp Version6|Bloomberg: 958 HK Equity| Reuters: 0958.HK Refer to important disclosures at the end of this report

DBS Group Research . Equity 29 Mar 2018

BUY Recovery on path Last Traded Price( 28 Mar 2018):HK$3.05(HSI : 30,023) Price Target 12-mth:HK$4.00 (31% upside) (Prev HK$3.50) Revised up FY18F earnings by 8%. This is to reflect stronger utilisation assumption of wind power of 2,200 hours from the previous 2,124 Analyst Addison Dai+852 2971 1931 [email protected] hours to reflect expectations of strong 1Q18. The company’s wind power generation for the first two months increased 19% y-o-y. We What’s New expect the solid performance could extend for the full year. This would • Raised FY18F earnings by 8% to reflect higher more than offset higher finance expenses and effective tax rate. wind power utilisation We argued the company’s fundamentals had hit a • Our FY18/19F EBITDA margins are higher than Where we differ: trough last July and its share price has bottomed and gained around consensus 25% since our recommendation upgrade. Our FY18/19F EBITDA • China’s expected implementation of Renewable margin estimates are higher than the street. Our FY18/19F EBITDA

Portfolio Standard is a re-rating catalyst margins are 91.7%/92.6% versus consensus’ 90.8%/90.6%. This is • Reiterate BUY, raised TP to HK$4.00; top pick in because of high operating leverage to change in wind power utilisation

wind power sector hours. We project wind power utilisation in 2018/19 to rise to 2,200hrs/2,220hrs vs 2,082hrs in 2017. Price Relative HK$ Relative Index

213 3.8 China’s Renewable Portfolio Standard (RPS) could be implemented by 193 3.3 173 153 2.8 133 2018. Recently, the National Energy Administration (NEA) announced 2.3 113 93 1.8 73 the “RPS and Assessment Methodology (Proposal draft)”, which sets 1.3 53 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Huaneng Renewables Corp (LHS) Relative HSI (RHS) national and provincial standards for non-hydro renewable power Forecasts and Valuation generation. It targets 15% of total power generation should be from FY Dec (RMBm) 2016A 2017A 2018F 2019F Turnover 9,239 10,554 11,653 12,482 renewable energy by 2020, and the majority of provinces have already EBITDA 8,367 9,444 10,686 11,563 raised the targeted ratio (for non-hydro renewable energy generation) Pre-tax Profit 2,910 3,408 4,450 4,997 higher compared to the renewable energy monitoring report Net Profit 2,659 3,012 3,940 4,425 announced by the NEA dated April-2017. Given RPS is mandatory and Net Pft (Pre Ex) (core profit) 2,659 3,012 3,940 4,425 Net Profit Gth (Pre-ex) (%) 43.0 13.3 30.8 12.3 will be governed by the National Energy Commission of the State EPS (RMB) 0.27 0.29 0.37 0.42 Council, we believe the RPS could be strictly executed once enforced, EPS (HK$) 0.34 0.37 0.47 0.52 which is positive to wind farm operators’ utilisation prospects. For Core EPS (HK$) 0.34 0.37 0.47 0.52 Core EPS (RMB) 0.27 0.29 0.37 0.42 detailed analysis, please refer to page two. EPS Gth (%) 43.0 7.5 26.9 12.3 Core EPS Gth (%) 43.0 7.5 26.9 12.3 Valuation: Diluted EPS (HK$) 0.34 0.37 0.47 0.52 TP raised to HK$4.00. This reflects our earnings upgrade. Our target DPS (HK$) 0.05 0.06 0.07 0.08 valuation is based on 8.6x FY18F PE, which is 0.4SD below the historical BV Per Share (HK$) 2.59 3.00 3.19 3.64 5-year average of 11.1x. This is undemanding given improving wind PE (X) 8.9 8.3 6.6 5.8 power outlook premised on improvement in utilisation and expected CorePE (X) 8.9 8.3 6.6 5.8 implementation of RPS in China. P/Cash Flow (X) 3.2 4.8 2.0 2.5 P/Free CF (X) nm nm 3.9 6.9 EV/EBITDA (X) 8.8 7.7 6.6 6.1 Key Risks to Our View: Net Div Yield (%) 1.7 1.8 2.3 2.6 Execution of government’s policy falls short of expectations. P/Book Value (X) 1.2 1.0 1.0 0.8 Net Debt/Equity (X) 2.3 1.9 1.6 1.4 ROAE(%) 14.0 13.5 15.3 15.3 At A Glance Issued Capital (m shrs) 10,567 Earnings Rev (%): 8 1 Mkt. Cap (HK$m/US$m) 32,228 / 4,107 Consensus EPS (RMB) 0.34 0.38 Major Shareholders Other Broker Recs: B: 27 S: 0 H: 4 China Huaneng Group (%) 52.4 Source of all data on this page: Company, DBSV, Thomson Reuters, Free Float (%) 47.6 HKEX 3m Avg. Daily Val. (US$m) 9.6 ICB Industry :Oil & Gas / Alternative Energy

ed- JS / sa- CS /CW

Company Guide

Huaneng Renewables Corp

Background: WHAT’S NEW

Renewable Portfolio Standard (RPS) proposal The NEA previously published the Letter regarding requesting On 23 March 2018, National Energy Administration (NEA) reedback on the appraisal standard for establishing a non- announced “Renewable Portfolio Standard (RPS) and hydro RPS for coal power IPPs on 22 April 2016, requiring at Assessment Methodology (Proposal)“( least a 15% share non-hydro renewable energy by 2020 to 可再生能源电力配额及 coal power IPP’s annual power output. But due to challenge ( )). 考核办法征求意见稿 business dynamic of coal-fired IPPs, the Letter was eventually held up and never implemented. The document sets national and provincial standards for renewable power and non-hydro renewable power generation. It targets 15% of total power generation should Our view: be from renewable energy by 2020 and the ratio is expected to reach 20% by 2030. This is mandatory and will be We have compared the “Renewable Portfolio Standard (RPS) governed by National Energy Commission of the State and Assessment Methodology (Proposal)” with renewable Council. energy monitoring report announced by the NEA in April 2017. This time, the RPS document has raised target for non- Market participants. To achieve this goal, “quota for power hydro renewable energy power generation by 2020 as majority of provinces have already increased their targets (See generated by renewable energy” (可再生能源电力证书) (“quota”) is introduced. One quota (certificate) represents “China wind power sector: Renewable Portfolio Standard 1MWh. Non-hydro renewable energy buyers (market (RPS) 2018 and 2020 target by province”). participants) include: i) provincial and local grid companies As the governing body will be National Energy Commission of (owned by either State Grid Corporation or China Southern Power Grid), ii) power sales companies, iii) industrial the State Council, we think execution of the RPS would be customers with captive power plants, and iv) customers of strict. We think this is positive towards further improvement direct-power-supply (DPS). These power buyers are obliged to in grid curtailment in the wind power industry. meet the RPS targets. According to our calculation, eleven provinces including Transaction. Power buyers will be granted the quota only Shanxi, Jilin, Heilongjiang, Anhui, Jiangxi, Henan, Hubei, upon a payment of full tariff. If power buyers are unable to Hunan, Tibet, Shaanxi and Qinghai had a gap exceeding 5% meet the RPS target, they will need to buy quota from a to reach its 2020 non-hydro renewable energy generation provincial grid company. Power consumers may buy quota target. Within these eleven provinces, two provinces are Tier from a local grid company if they have not achieved the III resource zones and nine provinces are Tier IV resource target RPS. The price of the quota will be determined by zones. supply and demand of the market, pending price proposals from provincial grid company. We expect utilisation hours of wind power to fare better than industry’s average improvement in these regions. Execution and punishment. The National Energy Commission of the State Council is responsible for supervision and assessment on an annual basis. Approval of construction of fossil fuel power plants in a province could be ceased or slashed if the province misses its RPS target in the previous year. Those market participants missed the RPS target will be punished with lower procurement volume of market trading power or even be deprived of the right to procure market trading power.

Page 2

Company Guide Huaneng Renewables Corp

China wind power sector: Renewable Portfolio Standard (RPS) 2018 and 2020 target by province

Total RE (excel. Hy dro) 2018 target 2020 target Previous 2020 New 2020 2016 Actual Gap between target target vs 2020 target and announced in previous 2020 2016 actual (%) April 2017 target (%)

Zhejiang 10.5% 13.0% 10.0% 3.0% 9.0% 4% Tianjin 10.5% 13.0% 10.0% 3.0% 9.0% 4% Hebei 10.5% 13.0% 10.0% 3.0% 9.0% 4% Shanxi 13.0% 15.0% 10.0% 5.0% 10.0% 5% Inner Mongolia 13.0% 13.0% 13.0% 0.0% 15.3% -2% Liaoning 9.0% 9.0% 13.0% -4.0% 8.6% 0% J ilin 16.5% 20.0% 13.0% 7.0% 13.7% 6% Heilongjiang 15.5% 22.0% 13.0% 9.0% 12.4% 10% Shanghai 2.5% 3.5% 5.0% -1.5% 2.0% 2% Jiangsu 5.5% 6.5% 7.0% -0.5% 4.2% 2% Zhejiang 5.0% 6.0% 7.0% -1.0% 3.6% 2% Anhui 11.5% 14.5% 7.0% 7.5% 6.1% 8% Fujian 5.0% 7.0% 7.0% 0.0% 3.7% 3% J iangxi 6.5% 14.5% 5.0% 9.5% 3.8% 11% Shandong 8.0% 10.5% 10.0% 0.5% 5.6% 5% Henan 8.0% 13.5% 7.0% 6.5% 4.4% 9% Hubei 7.5% 11.0% 7.0% 4.0% 4.7% 6% Hunan 9.0% 19.0% 7.0% 12.0% 4.1% 15% Guangdong 3.0% 3.8% 7.0% -3.2% 1.9% 2% Guangxi 3.0% 5.0% 5.0% 0.0% 1.3% 4% Hainan 4.0% 5.0% 10.0% -5.0% 4.5% 1% Chongqing 3.0% 3.5% 5.0% -1.5% 1.6% 2% Sichuan 4.5% 4.5% 5.0% -0.5% 2.3% 2% Guizhou 4.0% 4.8% 5.0% -0.2% 4.6% 0% Yunan 10.0% 10.0% 10.0% 0.0% 12.5% -3% Tibet 13.5% 17.5% 13.0% 4.5% 10.1% 7% Shaanxi 8.5% 11.5% 10.0% 1.5% 3.8% 8% Gansu 15.0% 15.0% 13.0% 2.0% 12.5% 3% Qinghai 21.0% 25.5% 10.0% 15.5% 18.3% 7% Ningxia 21.0% 21.5% 13.0% 8.5% 19.1% 2% Xinjiang 14.5% 14.5% 13.0% 1.5% 11.1% 3%

Source: NEA, DBS Vickers

Page 3

Company Guide

Huaneng Renewables Corp

Renewable Portfolio Standard (RPS) quota system

Local renewable energy producers

Sell

Renewable energy To support RPS target: 15% of quota (certificate) total by 2020, 20% by 2030 Buy

Local renewable energy buyers*

Source: NEA, DBS Vickers *Note: Local renewable energy buyers (market participants) include: i) provincial and local grid companies (owned by either State Grid Corporation or China Southern Power Grid), ii) power sales companies, iii) industrial customers with captive power plants, and iv) customers of direct-power-supply (DPS). These power buyers are obliged to meet the RPS targets.

Page 4

Company Guide Huaneng Renewables Corp

CRITICAL FACTORS TO WATCH Wind power utilisation (hours) 2200 2220 2,242 2082 1966 Critical Factors 1882 Exposure area of wind power capacity and new installation. 1,922 HNR’s wind farms are dominantly located in resource zones 1,602 with low curtailment (low grid constraints). As of end-2017, 1,281

Inner Mongolia (mainly East Inner Mongolia), Liaoning and 961 Yunnan were the three largest contributors, accounting for 23%, 13%, 10% of HNR’s total installed capacity respectively. 641 The three provinces accounted for 22%, 14% and 15% of the 320 company’s wind power generation in 2017 respectively. We 0 project HNR to install 0.6GW and 0.8GW respectively in 2015A 2016A 2017A 2018F 2019F 2017/18, versus 0.43GW in 2017. Wind power time-weighted installed capacity (MW)

11,589 11,361.6 10,681.1 China wind power feed-in-tariff (FIT). China’s FIT policy is 10,178.3 9,375.6 deemed as a promotion of renewable energy consumption, in 9,271 the context of seeking to achieve price parity with coal-fired 7,360.0 energy in the long run. In December 2014 and December 6,953 2015, the NDRC (National Development and Reform 4,636 Commission) issued the Notice ‘Appropriate Adjustment of

Onshore Wind Power Benchmark Feed-in-Tariff”, and trimmed 2,318 FIT for four resource zones for project operations and new project approvals starting in 2016. This is to reflect a 0 downward trend in installation cost (including ASP of wind 2015A 2016A 2017A 2018F 2019F turbine generator, ASP of tower, etc.) during 2007-15. We Wind power tariff (Rmb/kWh) forecast the company’s average wind power tariff to decline by 0.54 0.5 0.5% y-o-y to Rmb0.487/kWh. For FY17, we forecast every 1% 0.5 0.5 0.5 0.5 change in average wind power tariff will swing earnings by 0.43 2.6%. We think headwinds in FIT are already priced in. 0.32 Decline in unit capex outweighs challenge in Yunnan. After 0.21 more than one year project halt in Yunnan, HNR is set to have a new project approved, with installed capacity of 100- 0.11 150MW, by end-2017. Given the project will deploy Mingyang’s 3.0MW WTG (wind turbine generator) with local 0.00 2015A 2016A 2017A 2018F 2019F content of up to 70%, we estimate the project IRR to reach at Solar power utilisation (hours) least 12%. 1,591 1,590 1,590 1,590 1,607 1,528

Utilisation hours of wind farm. Utilisation of wind farms has 1,286 been solid YTD 2018. For FY18, we estimate that every 1% change in wind power utilisation hours will swing earnings by 964

2.2%. 643

321 Finance cost. Being a highly geared wind farm developer, HNR’s earnings are highly sensitive to interest expenses. For 0 FY18, we estimate that every 25-bp change in finance cost will 2015A 2016A 2017A 2018F 2019F swing earnings by 2.7%. Solar power tariff (Rmb/kWh)

1 1 0.78 0.71 0.71 1 0.64 0.65 1 1 0 0 0 0 0 2015A 2016A 2017A 2018F 2019F

Source: Company, DBS Vickers

Page 5

Company Guide

Huaneng Renewables Corp

Appendix 1: A look at Company's listed history – what drives its share price?

HNR: Share price performance

(HK$/share) Industry's grid HNR's wind power curtailment ratio Market's concern generation y-o-y worsened in 2H15; about tariff Wind power growth started to Dec-2015 announced uncertainty from industry downturn tariff cut for new 4.0 accelerate since expected due to electrical 4Q12 projects approval implementation equipment starting in 2016 3.5 of green malfunction of certificate wind turbine 3.0 generators in Feb- and-Apr 2012 2.5

2.0

1.5

1.0

0.5

0.0 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18

Source: Bloomberg Finance L.P, DBS Vickers

HNR: Share price vs wind power generation y-o-y growth

(HK$) (% y-o-y) 4.0 75%

3.5 60% 3.0 45% 2.5

2.0 30%

1.5 15% 1.0 0% 0.5

0.0 -15% Jul-15 Jul-16 Jul-17 Jan-16 Jan-17 Jan-18 Jun-15 Jun-16 Jun-17 Oct-15 Feb-16 Oct-16 Feb-17 Oct-17 Feb-18 Apr-15 Sep-15 Apr-16 Sep-16 Apr-17 Sep-17 Dec-15 Dec-16 Dec-17 Nov-15 Nov-16 Nov-17 Mar-15 Mar-16 Mar-17 Mar-18 Aug-15 Aug-16 Aug-17 May-15 May-16 May-17 Share prices (LHS) Wind power generation y-o-y (RHS)

Source: Bloomberg Finance L.P, DBS Vickers

Page 6

Company Guide Huaneng Renewables Corp

Balance Sheet: Net gearing to decline after equity funding in May-2017. We Leverage & Asset Turnover (x) project FY18/19 capex to be both Rmb6.4bn. The company’s 0.2 capital expenditure has been declining from historical high of 2.50 0.2 Rmb15.88bn in 2015, reflect its downward adjustment of new 0.2 2.00 0.1 wind power capacity construction. We forecast FY18/19 net 0.1 1.50 gearing to decrease to 163%/141%, compared to 192% in 0.1 0.1 2017. 1.00 0.1

0.50 0.0 Share Price Drivers: 0.0 0.00 0.0 Monthly wind power generation performance. The company 2015A 2016A 2017A 2018F 2019F announces its monthly power generation periodically. The Gross Debt to Equity (LHS) Asset Turnover (RHS) street accordingly adjusts the expectations of full-year Capital Expenditure RMBm projection of power generation. 14,000.0

12,000.0

Government’s supportive policy. China wind power sector 10,000.0 started its re-rating in March 2016, anticipating the 8,000.0

“guaranteed purchase utilisation hours” policy and a proposal 6,000.0 of Renewable Portfolio Standard (RPS) that would be released 4,000.0 in May 2016. 2,000.0 0.0 2015A 2016A 2017A 2018F 2019F On 3 February 2017, NDRC, Ministry of Finance and the NEA Capital Expenditure (-) jointly announced the introduction of renewable energy green ROE certificate (REC), which aims to alleviate rising pressure of renewable energy subsidies and promote wind power 14.0% consumption. 12.0% 10.0% Potential implementation of Renewable Portfolio Standard 8.0% (RPS). We have analysed the policy on page 2. 6.0% 4.0% Key Risks: 2.0% Weaker-than-expected power demand and wind speed 0.0% 2015A 2016A 2017A 2018F 2019F dampens recovery in utilisation hours of wind farms. Forward PE Band x 30 Company Background +2SD: 22.1x HNR has a core platform to develop and operate wind farms 25 of its parent China Huaneng Group (one of “Big Five” state- 20 +1SD: 16.6x 15 owned IPPs). The company was listed on the Hong Kong 10 Avg: 11.1x Exchange in June 2011. HNR is China’s second largest wind 5 -1S D: 5.5x 0 farm operator with cumulative installed wind capacity of -2SD: 0x 10.7GW as of end-2017, accounting for 5.7% of China’s -5 total. In 2017, HNR’s new installed wind capacity of 0.4GW Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 and generated wind power of 21,191GWh. The company also Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 operates solar farms with cumulative installed capacity of PB Band 880MW as of end-2017. x 2.5

+2SD: 1.7x 2.0 1.5 +1SD: 1.4x Avg: 1.1x 1.0 0.5 -1SD: 0.8x -2SD: 0.5x 0.0 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Source: Company, DBS Vickers

Page 7

Company Guide

Huaneng Renewables Corp

Key Assumptions FY Dec 2015A 2016A 2017A 2018F 2019F Wind power utilisation 1,882.0 1,966.0 2,082.0 2,200.0 2,220.0 (hours) Wind power time- weighted installed 7,360.0 9,375.6 10,178.3 10,681.1 11,361.6 capacity (MW) Wind power tariff 0.525 0.490 0.487 0.477 0.477 (Rmb/kWh) Solar power utilisation 1,591.0 1,528.0 1,590.0 1,590.0 1,590.0 (hours) Solar power tariff 0.778 0.709 0.714 0.645 0.645 (Rmb/kWh) Source: Company, DBS Vickers

Segmental Breakdown (RMB m)

FY Dec 2015A 2016A 2017A 2018F 2019F Revenues (RMB m) Sales revenue of power 7,354 9,233 10,548 11,647 12,479 generation Others 3 6 6 6 3 Total 7,357 9,239 10,554 11,653 12,482 Source: Company, DBS Vickers

Income Statement (RMB m) FY Dec 2015A 2016A 2017A 2018F 2019F Revenue 7,357 9,239 10,554 11,653 12,482 Cost of Goods Sold (2,844) (3,651) (3,990) (4,017) (4,234) Gross Profit 4,513 5,587 6,565 7,636 8,249 Other Opng (Exp)/Inc (5,345) (6,588) (7,947) (9,163) (9,884) Operating Profit 3,681 4,586 5,182 6,110 6,614 Other Non Opg (Exp)/Inc 435 322 469 365 428 Associates & JV Inc (3) (3) (5) 0 0 Net Interest (Exp)/Inc (2,073) (1,995) (2,238) (2,025) (2,044) Dividend Income 0 0 0 0 0 Exceptional Gain/(Loss) 0 0 0 0 0 Pre-tax Profit 2,041 2,910 3,408 4,450 4,997 Tax (141) (202) (346) (445) (500) Minority Interest (40) (49) (50) (65) (73) Preference Dividend 0 0 0 0 0 Net Profit 1,860 2,659 3,012 3,940 4,425 Net Profit before Except. 1,860 2,659 3,012 3,940 4,425 EBITDA 6,849 8,367 9,444 10,686 11,563 Growth Revenue Gth (%) 19.6 25.6 14.2 10.4 7.1 EBITDA Gth (%) 22.0 22.2 12.9 13.1 8.2 Opg Profit Gth (%) 15.8 24.6 13.0 17.9 8.2 Net Profit Gth (%) 65.9 43.0 13.3 30.8 12.3 Margins & Ratio Gross Margins (%) 61.3 60.5 62.2 65.5 66.1 Opg Profit Margin (%) 50.0 49.6 49.1 52.4 53.0 Net Profit Margin (%) 25.3 28.8 28.5 33.8 35.4 ROAE (%) 11.0 14.0 13.5 15.3 15.3 ROA (%) 2.4 3.2 3.5 4.5 4.8 ROCE (%) 4.9 5.7 5.9 6.9 7.3 Div Payout Ratio (%) 15.7 15.0 15.1 15.1 15.1 Net Interest Cover (x) 1.8 2.3 2.3 3.0 3.2 Source: Company, DBS Vickers

Page 8

Company Guide Huaneng Renewables Corp

Interim Income Statement (RMB m) FY Dec 2H2015 1H2016 2H2016 1H2017 2H2017

Revenue 3,434 4,914 4,324 5,617 4,937 Cost of Goods Sold (1,498) (1,675) (1,976) (1,962) (2,028) Gross Profit 1,936 3,239 2,349 3,655 2,910 Other Oper. (Exp)/Inc (2,439) (3,613) (2,976) (4,105) (3,842) Operating Profit 1,433 2,865 1,721 3,205 1,977 Other Non Opg (Exp)/Inc 334 112 209 182 287 Associates & JV Inc (3) (2) (1) 0 (5) Net Interest (Exp)/Inc (980) (997) (998) (1,101) (1,137) Exceptional Gain/(Loss) 0 0 0 0 0 Pre-tax Profit 784 1,978 931 2,286 1,121 Tax (45) (143) (59) (204) (142) Minority Interest (14) (30) (19) (50) 1 Net Profit 726 1,805 854 2,032 980 Net profit bef Except. 726 1,805 854 2,032 980

Growth Revenue Gth (%) 8.8 25.3 25.9 14.3 14.2 Opg Profit Gth (%) (5.5) 27.4 20.1 11.9 14.8 Net Profit Gth (%) 66.8 59.2 17.7 12.6 14.8

Margins Gross Margins (%) 56.4 65.9 54.3 65.1 58.9 Opg Profit Margins (%) 41.7 58.3 39.8 57.1 40.0 Net Profit Margins (%) 21.1 36.7 19.7 36.2 19.8 Source: Company, DBS Vickers

Balance Sheet (RMB m) FY Dec 2015A 2016A 2017A 2018F 2019F

Net Fixed Assets 68,658 72,107 71,406 72,173 73,142 Invts in Associates & JVs 109 106 254 254 254 Other LT Assets 6,134 4,536 3,447 6,067 7,859 Cash & ST Invts 3,470 1,665 2,503 3,387 3,803 Inventory 43 33 55 60 68 Debtors 2,900 4,635 7,214 7,575 8,332 Other Current Assets 1,239 2,362 1,470 212 237 Total Assets 82,553 85,445 86,349 89,728 93,696

ST Debt 18,727 22,563 20,353 20,500 20,600 Creditors 9,250 7,440 6,253 9,550 9,550 Other Current Liab 556 514 480 550 550 LT Debt 30,677 28,372 29,451 26,804 26,704 Other LT Liabilities 4,718 5,561 4,369 4,421 4,498 Shareholder’s Equity 17,798 20,137 24,602 26,998 30,816 Minority Interests 827 857 840 905 978 Total Cap. & Liab. 82,553 85,445 86,349 89,728 93,696

Non-Cash Wkg. Capital (5,624) (924) 2,006 (2,253) (1,463) Net Cash/(Debt) (45,934) (49,269) (47,301) (43,917) (43,501) Debtors Turn (avg days) 150.3 148.9 204.9 231.6 232.6 Creditors Turn (avg days) 28,923.0 16,126.5 13,065.9 (14,803.5) (12,131.1) Inventory Turn (avg days) 94.3 73.1 84.0 (108.3) (81.5) Asset Turnover (x) 0.1 0.1 0.1 0.1 0.1 Current Ratio (x) 0.3 0.3 0.4 0.4 0.4 Quick Ratio (x) 0.2 0.2 0.4 0.4 0.4 Net Debt/Equity (X) 2.5 2.3 1.9 1.6 1.4 Net Debt/Equity ex MI (X) 2.6 2.4 1.9 1.6 1.4 Capex to Debt (%) 25.6 15.5 13.1 13.7 13.7 Z-Score (X) NA NA NA NA NA Source: Company, DBS Vickers

Page 9

Company Guide

Huaneng Renewables Corp

Cash Flow Statement (RMB m) FY Dec 2015A 2016A 2017A 2018F 2019F

Pre-Tax Profit 2,041 2,910 3,408 4,450 4,997 Dep. & Amort. 2,735 3,462 3,798 4,212 4,519 Tax Paid (126) (179) (346) (445) (500) Assoc. & JV Inc/(loss) 3 3 3 3 3 (Pft)/ Loss on disposal of FAs 0 4 0 0 0 Chg in Wkg.Cap. 967 (844) (3,808) 2,911 (785) Other Operating CF 2,063 1,983 2,190 1,980 2,004 Net Operating CF 7,682 7,338 5,244 13,111 10,239 Capital Exp.(net) (12,644) (7,877) (6,500) (6,500) (6,500) Other Invts.(net) 0 0 0 0 0 Invts in Assoc. & JV 0 0 0 0 0 Div from Assoc & JV 10 19 10 10 10 Other Investing CF 120 488 146 146 146 Net Investing CF (12,514) (7,370) (6,344) (6,344) (6,344) Div Paid (195) (292) (454) (594) (668) Chg in Gross Debt 5,246 1,277 3,300 (2,500) 0 Capital Issues 0 0 0 0 0 Other Financing CF (3,134) (2,758) (909) (2,788) (2,811) Net Financing CF 1,917 (1,773) 1,937 (5,882) (3,479) Currency Adjustments 0 0 0 0 0 Chg in Cash (2,915) (1,804) 837 884 416 Opg CFPS (RMB) 0.69 0.84 0.88 0.97 1.04 Free CFPS (RMB) (0.51) (0.06) (0.12) 0.63 0.35

Source: Company, DBS Vickers

Target Price & Ratings History

S.No. Date Closing 12-mth Rating HK$ 1 2 3.0 3 4 6 Price Target 2.9 5 Price 2.8 1: 24-Apr-17 HK$2.69 HK$2.62 Hold 2.7 7 2: 11-May-17 HK$2.82 HK$2.54 Hold 2.6 3: 2-Jun-17 HK$2.54 HK$2.54 Hold 2.5 4: 13-Jul-17 HK$2.45 HK$3.00 Buy 2.4 5: 24-Aug-17 HK$2.37 HK$3.00 Buy 2.3 6: 14-Sep-17 HK$2.47 HK$3.09 Buy 2.2 7: 19-Oct-17 HK$2.68 HK$3.50 Buy 2.1 2.0 Jul-17 Jan-18 Jan-18 Jun-17 Feb-18 Oct-17 Apr-17 Sep-17 Dec-17 Nov-17 Mar-18 Mar-17 Aug-17 May-17

Source: DBS Vickers Analyst: Addison Dai

Page 10

Company Guide Huaneng Renewables Corp

DBSVHK recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends

Completed Date: 29 Mar 2018 15:29:38 (HKT) Dissemination Date: 29 Mar 2018 18:04:28 (HKT) Sources for all charts and tables are DBS Vickers unless otherwise specified.

GENERAL DISCLOSURE/DISCLAIMER

This report is prepared by DBS Vickers (Hong Kong) Limited (“DBSV HK”). This report is solely intended for the clients of DBS Bank Ltd., DBS Bank (Hong Kong) Limited (DBS HK), DBSV HK, and DBS Vickers Securities (Singapore) Pte Ltd. (“DBSVS”), its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSV HK.

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., DBS HK, DBSV HK, DBSVS, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the information in this report.

This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned schedule or frequency for updating research publication relating to any issuer.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.

Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report.

DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making.

Page 11

Company Guide

Huaneng Renewables Corp

ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or his associate does not have financial interests 2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the DBS Group.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd, DBS HK, DBSVS, DBSV HK or their subsidiaries and/or other affiliates do not have a proprietary position in the securities recommended in this report as of 27 Mar 2018.

2. Neither DBS Bank Ltd, DBS HK nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

Compensation for investment banking services: 3. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

4. Disclosure of previous investment recommendation produced: DBS Bank Ltd, DBSVS, DBSVHK, their subsidiaries and/or other affiliates of DBSVUSA may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBSVHK, their subsidiaries and/or other affiliates of DBSVUSA in the preceding 12 months.

1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.

2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.

Page 12

Company Guide Huaneng Renewables Corp

RESTRICTIONS ON DISTRIBUTION General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Australia This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”). DBS holds Australian Financial Services Licence no. 475946. DBSVS is exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, and DBSVHK is regulated by the Securities and Futures Commission of Hong Kong under the laws of Hong Kong, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong This report is being distributed in Hong Kong by DBS Bank Ltd, DBS Bank (Hong Kong) Limited and DBS Vickers (Hong Kong) Limited, all of which are registered with or licensed by the Hong Kong Securities and Futures Commission to carry out the regulated activity of advising on securities. Indonesia This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia. Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report. Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. United This report is produced by DBSVHK which is regulated by the Hong Kong Securities and Futures Commission

Kingdom This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd (“DBSVUK”). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom.

In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication. Dubai This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, International Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Financial Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for Centre professional clients (as defined in the DFSA rulebook) and no other person may act upon it.

Page 13

Company Guide

Huaneng Renewables Corp

United Arab This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as defined Emirates in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment adviser if you need advice on the merits of buying, selling or holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent. United States This report was prepared by DBSVHK. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should

contact DBSVUSA directly and not its affiliate. Other In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified,

jurisdictions professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. DBS Vickers (Hong Kong) Limited 18th Floor Man Yee building, 68 Des Voeux Road Central, Central, Hong Kong Tel: (852) 2820-4888, Fax: (852) 2868-1523 Company Regn. No. 31758

Page 14

Company Guide Huaneng Renewables Corp

DBS Regional Research Offices

HONG KONG MALAYSIA SINGAPORE DBS Vickers (Hong Kong) Ltd AllianceDBS Research Sdn Bhd DBS Bank Ltd Contact: Carol Wu Contact: Wong Ming Tek (128540 U) Contact: Janice Chua 18th Floor Man Yee Building 19th Floor, Menara Multi-Purpose, 12 Marina Boulevard, 68 Des Voeux Road Central Capital Square, Marina Bay Financial Centre Tower 3 Central, Hong Kong 8 Jalan Munshi Abdullah 50100 Singapore 018982 Tel: 852 2820 4888 Kuala Lumpur, Malaysia. Tel: 65 6878 8888 Fax: 852 2863 1523 Tel.: 603 2604 3333 Fax: 65 65353 418 e-mail: [email protected] Fax: 603 2604 3921 e-mail: [email protected] Participant of the Stock Exchange of Hong Kong Ltd e-mail: [email protected] Company Regn. No. 196800306E

INDONESIA THAILAND PT DBS Vickers Sekuritas (Indonesia) DBS Vickers Securities (Thailand) Co Ltd Contact: Maynard Priajaya Arif Contact: Chanpen Sirithanarattanakul DBS Bank Tower 989 Siam Piwat Tower Building, Ciputra World 1, 32/F 9th, 14th-15th Floor Jl. Prof. Dr. Satrio Kav. 3-5 Rama 1 Road, Pathumwan, Jakarta 12940, Indonesia Bangkok Thailand 10330 Tel: 62 21 3003 4900 Tel. 66 2 857 7831 Fax: 6221 3003 4943 Fax: 66 2 658 1269 e-mail: [email protected] e-mail: [email protected] Company Regn. No 0105539127012 Securities and Exchange Commission, Thailand

Page 15