Hydro Segment Continued to Recover, Maintain "Accumulate"

股

票

研 [Table_Title] Jake Wang 汪昌江 Company Report: Huadian Fuxin (00816 HK) 究 (86755) 2397 6675 EquityResearch 公司报告：华电福新 (00816 HK) [email protected]

20 September 2019 Hydro[Table_S Segmentummary] Continued to Recover, Maintain "Accumulate"

水电板块持续复苏，维持“收集”  HDFX's total power generation in August 2019 increased 19.3% YoY; [Table_Rank] accumulated total power generation for 2019 was up by 11.4% YoY. The Rating: Accumulate

Maintained Company's monthly hydro power generation in August increased 120.4% YoY, 公 representing cumulative growth of 135.3% for the first 8 months of 2019. Total 评级：收集 (维持) 司 non-hydro renewable power generation rose 5.2% YoY for January -August. 报 We expect the Company's cumulative hydro utilisation hours for 2019 full year to be around 3,800 hours. Coal-fired utilisation hours may record 6[Table_Price-18m TP 目标价] : HK$1.85 告 10.0%-15.0% decrease on a YoY basis in 2019 to around 4,200 hours. Revised from 原目标价: HK$1.99

CompanyReport Currently, we estimate growth of the Company's total power generation to be Share price 股价： HK$1.450 around 8.2% YoY for 2019 full year.

 The Company's 1H19 net profit attributable to equity holders increased 15.9% YoY to RMB1,784 mn, EPS represented 61.1% of our previous Stock performance full-year forecast and was lower than expected. The lower-than-expected 股价表现 earnings was mainly due to relatively low profit from associates and joint [Table_QuotePic30.0 % of return] ventures, which resulted from lower power generation from Fuqing Nuclear 25.0 during 1H19. Excluding the Company's nuclear business, overall revenue and 20.0 15.0 operating costs for HDFX's other major business segments were basically in 10.0

line with our expectation. We remain optimistic regarding the Company's 5.0

证 earnings growth rate for 2019 given the stability from the complementation 0.0

券告 between business segments. (5.0) (10.0)

研  报 We maintain "Accumulate" rating for HDFX while cut TP to HK$1.85. We (15.0)

(20.0)

have revised down the Company's EPS forecasts by 1.1%/ 7.7%/ 0.2% to Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 究究

RMB0.298/ RMB0.354/ RMB0.472 for 2019-2021, respectively, mainly based HSI Index Huadian Fuxin 报研 on lower profit forecasts from associates and JVs and higher distribution

告 assumptions to MTN/ renewable bond holders. Our current TP represents 券 Change[Table_PriceChange] in Share Price 1 M 3 M 1 Y

5.7x/ 4.8x/ 3.6x 2019/ 2020/ 2021 PER. EquityResearch Report 股价变动 1 个月 3 个月 1 年  证华电福新 2019 年 8 月的总发电量同比增长 19.3%；2019 年的累计发电量同比升 11.4%。 Abs. % [Tab 9.0 (0.7) (7.1)

绝对变动 %

公司 8 月份的水电发电量同比增长 120.4%，2019 年首 8 个月的累计水电发电量增速达到 Rel. % to HS Index le_I 8.3 5.5 (3.6)

清 135.3%。1-8 月份的非水可再生能源总发电量同比上升 5.2%。我们预计公司 2019 年的累相对恒指变动 %

Avg. share price(HK$) nfo1 计水电利用小时数将达到 3,800 小时左右。火电利用小时预计会录得 10.0% - 15.0%的同比 1.4 1.4 1.6 洁平均股价（港元）能] 下滑至 4,200 小时左右。我们现预计公司 2019 全年的总发电量同比增速为 8.2%左右。 Source: Bloomberg, Guotai Junan International.

源  公司 2019 上半年权益持有人应占净利润同比上升 15.9%至人民币 17.84 亿元，每股盈利相 Wind & Others & Wind

行当于我们此前全年预测的 61.1%且低于预期。业绩低于预期主要是受相对较低的联营合营 - 业利润影响，主因是福清核电的发电量出现同比下滑。除核电业务以外，公司其他主要业务 - 板块的总体收入及经营成本大致符合我们预期。我们仍然看好公司各业务板块之间互补所风带来的稳定性，对其 2019 年的盈利增速持乐观看法。电  我们维持对华电福新的“收集”评级但将目标价下调至 1.85 港元。由于更低的联营合营利润及预测，以及更高的永续中票/可续期债券分派假设，我们将公司 2019/ 2020/ 2021 年每股盈其利预测分别下调 1.1%/ 7.7%/ 0.2%至人民币 0.298 元/ 0.354 元/ 0.472 元。我们当前的目标它价相当于 5.7 倍/ 4.8 倍/ 3.6 倍的 2019/ 2020/ 2021 年市盈率。

CleanSector Energy

Y[Table_ear End Turnover Net Profit EPS EPS PER BPS PBR DPS Yield ROE 年结Profit ] 收入股东净利每股净利每股净利变动市盈率每股净资产市净率每股股息股息率净资产收益率 [Tab 12/31 (RMB m) (RMB m) (RMB) (△ %) (x) (RMB) (x) (RMB) (%) (%) le_I 2017A 16,813 1,986 0.236 1.7 5.1 2.786 0.4 0.056 4.6 9.1

nfo2 2018A 18,330 1,993 0.237 0.4 5.4 3.575 0.4 0.057 4.5 7.5 2019F 19,780 2,503 0.298 25.6 4.5 4.180 0.3 0.070 5.3 7.7 ] 2020F 22,242 2,980 0.354 19.1 3.7 4.154 0.3 0.083 6.2 8.5 华 2021F 26,168 3,972 0.472 33.3 2.8 4.308 0.3 0.110 8.3 11.2

电 [Table_BaseData]Shares in issue (m) 总股数 (m) 8,408.0 Major shareholder 大股东 China Huadian Corp Ltd. 69.4% 福 Market cap. (HK$ m) 市值 (HK$ m) 12,191.5 Free float (%) 自由流通比率(%) 22.9 新 3 month average vol. 3 个月平均成交股数(‘000) 4,181.8 FY19 Net gearing (%) FY19 净负债/股东资金 (%) 171.2 52 Weeks high/low (HK$) 52 周高/低 1.920 / 1.290 FY19 Est. NAV (HK$) FY19 每股估值（港元） 2.8

Source: the Company, Guotai Junan International. HuadianHK) (00816 Fuxin

See the last page for disclaimer Page 1 of 9

[Table_PageHeader]Huadian Fuxin (00816 HK)

Huadian Fuxin's ("HDFX" or the "Company") total power generation in August 2019 increased 19.3% YoY to 4,344GWh;

accumulated total power generation was up by 11.4% YoY. For the first 8 months of 2019] 1 , ther a Company’sM t h g aggregatei R _ e powerl b a T [

generation from its coal-fired and hydro segment increased 17.0% YoY contributed by growth in total power consumption and external power transmission in Fujian. Rainfall and water flow conditions in Fujian continued on a strong uptrend; cumulative hydro utilisation hours for the province in January-July surged 89.0% YoY to 2,493 hours. Given the significant increase in hydro utilisation in Fujian Province and the low base last year, HDFX's monthly hydro power generation in August increased 120.4% YoY, representing cumulative growth of 135.3% for the first 8 months of 2019. Total non-hydro renewable power

generation rose 5.2% YoY during the same period. Average wind speed recovered in August and the Company's wind power 20 September2019 generation for the month was up 11.5% YoY; estimated monthly utilisation hours increased 9.4% YoY to 134 hours. Cumulative wind utilisation hours was estimated to be around 1,391 hours for the first 8 months of 2019. Overall, the Company’s power generation performance in August was slightly above our expectation. According to the Company's YTD hydro power generation, we expect its cumulative hydro utilisation hours for 2019 full year to be around 3,800 hours. Coal-fired utilisation hours may record 10.0%-15.0% decrease on a YoY basis in 2019 to around 4,200 hours as a major complementary energy for Fujian province. The wind segment is expected to recover as the average wind speed gradually increases in 4Q19. Currently, we estimate growth of the Company's total power generation to be around 8.2% YoY for 2019 full year.

Figure-1: Monthly Power Generation for HDFX Figure-2: Power Generation Breakdown for HDFX

] 2 r a M t h g i R _ e l b a T [

GWh Monthly Power Generation YoY GWh 25.1% Coal-fired Hydro Wind Solar Others 6,000 18.1% 19.3% 19.3% 30% 5,000 14.4% 8.0% 8.8% 5.6% 4,500 290 3.7% 10% 267 344 5,000 -2.4% -2.9% 264 161 352 364 -6.6% 151 -9.8% 4,000 165 377 163 160 284 97 243 285 270 256 148 -10% 3,500 4,000 134 114 113 148 150 1,713 1,081 1,075 1,619 1,638 -30% 3,000 1,727 177 1,293 964 1,286 105 3,000 2,500 1,308 1,400 1,463 -50% 1,093 2,000 496 1,234 1,611 1,060 1,064 2,000 606 627 319 1,114

-70% 1,500 485 605 1,477

422 1,000 1,000 -90% 1,749 1,652 1,411 1,389 1,431 1,569 1,322 1,124 1,271 1,299 1,165 500 944 864 0 -110%

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(00816 HK)

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Source: the Company. Source: the Company. 华电福新

The Company's 1H19 net profit attributable to equity holders increased 15.9% YoY to RMB1,784 mn, lower than expected. Revenue was up by 10.5% YoY contributed by the increase in hydropower electricity sales and the substituted

electricity sales of coal-fired power. Cost of fuels decreased 10.4% YoY from less coal-fired power generation and lower Huadian Fuxin average coal prices. Repair and maintenance costs was up 67.3% YoY but was mostly due to the change in capacity maintenance schedule. Other operating expenses surged 104.9% YoY arising from the purchase of substituted electricity under the transfer of planned power generation quota of coal-fired power segment. Net finance expenses decreased 2.8% YoY in 1H19, with average borrowing cost of around 4.59%. Share of profit from associates and joint ventures dropped 38.5% YoY due to less power generation from the Company's associate Fuqing Nuclear and Sanmen Nuclear. In general, the Company’s 1H19 results were lower than expected. Excluding the distribution to perpetual mid-term notes (MTN) and renewable bonds holders, the Company's 1H19 shareholders' profit represents 61.1% of our previous full-year forecast. The lower-than-expected earnings was mainly due to relatively low profit from associates and joint ventures, which was driven by lower power generation from Fuqing Nuclear and the frequent overhaul period of Sanmen Nuclear during 1H19. Finance expenses saw a slight reduction but was mostly offset by higher distribution to perpetual MTN and renewable bond holders. Excluding the Company's nuclear business, overall revenue and operating costs for HDFX's other major business segments were basically in line with

our expectation. Looking ahead for 2H19, the Company's hydro segment may continue on a robust uptrend given abundant water flow from the typhoon season in July-October. The wind segment is expected to recover as the average wind speed

gradually increases in the 4th quarter; solar and gas-fired business maintained steady growth momentum. Thus we are still

Report optimistic regarding the Company's earnings growth rate for 2019 given the stability from the complementation between

business segments.

Company

See the last page for disclaimer Page 2 of 9 [Table_PageHeader]Huadian Fuxin (00816 HK)

Table-1: HDFX's 1H19 results review 1H2018 1H2019 YoY/ppt Comments

] 1 r a M t h g i R _ e l b a T [

Operation figures

Total installed capacity (MW) 15,801 16,420 3.9% Installed coal-fired capacity (MW) 3,600 3,600 0.0% Installed hydro capacity (MW) 2,508 2,608 4.0% HDFX added 76.8MW wind capacity and 59.1MW solar Installed wind capacity (MW) 7,840 8,070 2.9% capacity in 1H19 Installed solar capacity (MW) 1,156 1,215 5.1% Installed gas capacity (MW) 673 903 34.2%

Installed biomass capacity (MW) 25 25 0.0% 20 September2019 Total electricity generation (GWh) 21,749 24,060 10.6% Coal-fired generation (GWh) 8,432 7,070 -16.2% Hydro power generation in Fujian increased 51.9% YoY Hydro generation (GWh) 2,375 5,456 129.7% during 1H19 due to better water flows. Because of the Wind generation (GWh) 8,940 8,983 0.5% shift between the two major complementary energy for Solar generation (GWh) 822 850 3.4% the province, cumulative coal-fired power generation was down by 10.7% YoY. Gas generation (GWh) 1,100 1,628 48.0% Biomass generation (GWh) 79 73 -8.2% Avg coal-fired (self) tariff (VAT excl.) 335.9 344.5 2.6% Due to VAT rate cut and lower market trading discount (RMB/MWh) Avg hydro tariff (VAT excl.) (RMB/MWh) 286.3 288.3 0.7% Avg wind tariff (VAT excl.) (RMB/MWh) 433.7 415.8 -4.1% Wind tariff has been decreasing towards grid parity Avg solar tariff (VAT excl.) (RMB/MWh) 815.6 810.7 -0.6%

] 2 r a M t h g i R _ e l b a T [ Financial result (RMB Mn) Revenue 8,852 9,781 10.5% Other net income 184 123 -32.9% Less penalty income of construction contract Cost of fuel (2,739) (2,455) -10.4% Less coal-fired power generation plus lower coal prices D&A (2,271) (2,366) 4.2% Wind and solar capacity increased Service concession construction (36) (10) -71.9% Personnel costs (654) (693) 6.1% R&M (147) (247) 67.3% Due to a change in capacity maintenance schedule Administration expenses (180) (139) -22.5%

Other operating expenses (251) (514) 104.9% Incurred by substituted electricity purchases Operating expenses (6,278) (6,424) 2.3% Operating profit 2,758 3,480 26.2%

Finance income 64 49 -22.5% (00816 HK)

Finance expenses (1,492) (1,438) -3.6% Average borrowing rate was around 4.59% in 1H19 Share of profits of Asso. & JV. 486 299 -38.5% Less power generation for Fuqing & Sanmen Nuclear PBT 1,815 2,390 31.7%

Income tax (180) (357) 98.8% 华电福新 PAT 1,635 2,033 24.3% Non-controlling interests (96) (249) 158.7% Profit contribution from hydro segment increased Perpetual MT note & renewable bonds (111) (236) 112.8% Net profit to owners of the Company 1,539 1,784 15.9%

Shareholders' profit 1,428 1,548 8.4% Huadian Fuxin EPS 0.170 0.184 8.4% Margins & Ratios EBITDA margin 62.3% 62.8% 0.5ppt Operating margin 31.2% 35.6% 4.4ppt Net margin 16.1% 15.8% -0.3ppt Effective tax rate 9.9% 14.9% 5.0ppt ROE (Annualized) 12.6% 12.7% 0.1ppt Net gearing 277.1% 175.8% -101.3ppt Higher total equity from the issuance of perpetual MTN Source: the Company, Guotai Junan International.

Key notes from HDFX's 1H19 conference call

1) The Company's target wind capacity addition for 2019 remained unchanged at 400 MW-500 MW; total capital expenditure

for 2019 is expected to be around RMB8.50 bn. Newly installed wind capacity for 2020 was set to be 800 MW-1,000 MW.

The Company also plans to initiate another 100 MW-200 MW in photovoltaic projects in 2020 (but no further deployments

for 2019). The pumped storage power plant in Fujian is scheduled to commission its first unit in 2021, and is expected to be Report

fully operational by 2022.

2) The Company expects its full-year hydro utilisation hours in 2019 to be around 3,850 hours. Wind utilisation guidance

remained at 2,150 hours, with curtailment rate of 7.0% or lower (7.8% for 1H19). Company

3) As of June 30, 2019, the Company's existing receivables balance regarding renewable energy subsidies was RMB10.10 bn. See the last page for disclaimer Page 3 of 9 [Table_PageHeader]Huadian Fuxin (00816 HK)

Among which about RMB1.10 bn of the receivables were assigned to the 8th batch of renewable energy catalog, while the

rest were from the first 7 batches. The management expects to collect about RMB3.30] bn1 -r RMB3.50a M t bnh g of i theR outstanding_ e l b a T [

receivables in 2019. HDFX issued RMB4.10 bn worth of ABS/ ABN thus far to cope with the cash flow strains from subsidy

arrears. The Company will continue to adopt receivables securitization as an alternative financing measure in 2H19, as long as the cost is reasonable.

Key adjustments for HDFX

20 September2019 1) Revise the Company's average operating capacity assumptions to meet the management's guidance. The Company's coal-fired power plants, Shaowu Phase III (2*660MW in Fujian), was already near the stage of completion. We now assume the 1st unit to commence operation in 4Q19; the 2nd unit is assumed to be operational in 4Q20 or later. We also trim down newly installed wind capacity assumption from 500 MW to 400 MW for 2019 given the Company's current construction progress, but revise up capacity addition forecast to 800MW for 2020 as we expect HDFX to accelerate its wind project developments before grid parity. Wind capacity additions for 2021 and onwards may return to a lower but more stable level.

2) Revise down total operating expenses estimates by 3.5%/ 4.6%/ 3.3% for 2019/ 2020/ 2021. We expect the

Company's cost of fuel to record around 10.0% YoY decrease for 2019 full year given less] coal2 r -fireda M powert h g generationi R _ e l andb a T [

lower average coal prices. Other operating expenses may rise about 30.0%-35.0% YoY as the Company carried out several electricity substitution businesses in 1H19 (250 GWh for Zhangping Power Plant, substituted by Fuqing Nuclear; 400GWh for Yong'an Power Plant, substituted by Ningde Nuclear), partially offsetting the decrease in cost of fuels. However, as the power substitution quota for 2019 was basically met, we don't expect to see further increase in the power purchase cost for substituted electricity during 2H19. R&M expense is expected to record only moderate increase on a YoY basis for 2019 full year because most of the equipment overhauls are already completed in 1H19.

3) Revise net finance expenses estimates and perpetual MTN distribution forecasts according to the change in the Company's debt structure. The Company issued RMB2.00 bn in perpetual mid-term notes with borrowing rates of 4.50%

in 1H19, and plans to issue another RMB1.60 bn MTN in September (which will be divided into two accruing periods). Also, (00816 HK)

HDFX may continue to issue ABS/ ABN products in order to improve its cash flow situations and net gearing. Thus we revise down the Company's net finance cost estimate for 2019 from lower average balance of borrowings, but slightly

revise up the forecasts for 2020-2021 assuming higher total Capex. Average borrowing rate may remain at around 4.60% 华电福新 given relatively loose domestic monetary environment. Estimates for the Company's profit attributable to MTN and renewable bond holders have been revised up by 16.2%/ 36.8%/ 50.4% for 2019/ 2020/ 2021 to reflect the increase in interest expenses that are recorded as distributions.

Huadian Fuxin 4) Revise down profit forecasts from associates and joint ventures. Profit contribution from Fuqing Nuclear decreased 34.9% YoY to RMB364 mn in 1H19 because of lower total power generation (from 16.04 MMWh in 1H18 to 13.968 MMWh in 1H19). Although this was mostly caused by the rebalance of regional power structure in Fujian Province and is expected to improve during the second half, full-year profit contribution from Fuqing may still not exceed RMB800 mn. In addition, the 2nd unit of Sanmen Nuclear turned into maintenance shortly after commencement, which led to the RMB40 mn net loss from Sanmen in 1H19. We expect to see further losses from Sanmen Nuclear if its 2nd unit remains inoperative for the rest of 2019.

We maintain our "Accumulate" rating for HDFX but revise down TP to HK$1.85. We revise down the Company's 2019/ 2020/ 2021 EPS forecasts by 1.1%/ 7.7%/ 0.2% to RMB0.298/ RMB0.354/ RMB0.472, respectively. The revisions are mainly based on lower profit forecasts from associates and JVs, and higher distribution assumptions to MTN/ renewable bond holders. Although HDFX's 1H19 results were slightly below our expectation, profitability for the Company's major business segments remained stable. The Company will continue to adopt receivables factoring/ asset securitization methods to alleviate the impact

from subsidy arrears, optimizing its operating cash flow. We maintain our "Accumulate" rating for HDFX while cut TP from Report HK$1.99 to HK$1.85, reflecting the adjustments in our EPS forecasts. Our current TP represents 5.7x/ 4.8x/ 3.6x 2019/ 2020/

2021 PER and 0.4x/ 0.4x/ 0.4x 2019/ 2020/ 2021 PBR.

Company

See the last page for disclaimer Page 4 of 9 [Table_PageHeader]Huadian Fuxin (00816 HK)

Table-2: Key operating factors and adjustments for HDFX Old New Change

] 1 r a M t h g i R _ e l b a T [

2019F 2020F 2021F 2019F 2020F 2021F 2019F 2020F 2021F Newly installed consolidated capacity (MW) 1,210.0 1,835.0 2,500.0 1,119.0 2,160.0 2,450.0 -7.5% 17.7% -2.0% Coal-fired 660.0 660.0 1,000.0 660.0 660.0 1,000.0 0.0% 0.0% 0.0% Hydro 0.0 0.0 300.0 0.0 0.0 300.0 n.a. n.a. 0.0% Wind 500.0 525.0 550.0 400.0 800.0 500.0 -20.0% 52.4% -9.1% Solar 50.0 50.0 50.0 59.0 100.0 50.0 18.0% 100.0% 0.0% Distributed 0.0 600.0 600.0 0.0 600.0 600.0 n.a. 0.0% 0.0% Biomass 0.0 0.0 0.0 0.0 0.0 0.0 n.a. n.a. n.a. Consolidated installed capacity (MW) 17,494.4 19,329.4 21,829.4 17,403.4 19,563.4 22,013.4 -0.5% 1.2% 0.8% Coal-fired 4,260.0 4,920.0 5,920.0 4,260.0 4,920.0 5,920.0 0.0% 0.0% 0.0% 20 September2019 Hydro 2,607.9 2,607.9 2,907.9 2,607.9 2,607.9 2,907.9 0.0% 0.0% 0.0% Wind 8,493.0 9,018.0 9,568.0 8,393.0 9,193.0 9,693.0 -1.2% 1.9% 1.3% Solar 1,205.6 1,255.6 1,305.6 1,214.6 1,314.6 1,364.6 0.7% 4.7% 4.5% Distributed 902.6 1,502.6 2,102.6 902.6 1,502.6 2,102.6 0.0% 0.0% 0.0% Biomass 25.3 25.3 25.3 25.3 25.3 25.3 0.0% 0.0% 0.0% Average operating capacity (MW) 16,600.2 18,264.4 20,458.6 16,554.2 18,066.7 20,684.2 -0.3% -1.1% 1.1% Coal-fired 3,820.0 4,480.0 5,420.0 3,655.0 4,315.0 5,420.0 -4.3% -3.7% 0.0% Hydro 2,607.9 2,607.9 2,682.9 2,607.9 2,607.9 2,682.9 0.0% 0.0% 0.0% Wind 8,076.3 8,580.5 9,109.7 8,193.0 8,526.3 9,276.3 1.4% -0.6% 1.8% Solar 1,168.1 1,218.1 1,268.1 1,170.4 1,239.6 1,327.1 0.2% 1.8% 4.7% Distributed 902.6 1,352.6 1,952.6 902.6 1,352.6 1,952.6 0.0% 0.0% 0.0% Biomass 25.3 25.3 25.3 25.3 25.3 25.3 0.0% 0.0% 0.0% Utilization hours (h) 2,897 3,020 3,132 2,914 3,023 3,129 0.6% 0.1% -0.1%

] 2 r a M t h g i R _ e l b a T [ Coal-fired 4,407 4,489 4,567 4,207 4,389 4,517 -4.5% -2.2% -1.1% Hydro 3,225 3,275 3,300 3,825 3,550 3,475 18.6% 8.4% 5.3% Wind 2,155 2,235 2,265 2,130 2,235 2,265 -1.2% 0.0% 0.0% Solar 1,400 1,405 1,410 1,400 1,405 1,410 0.0% 0.0% 0.0% Distributed 4,025 4,030 4,035 4,025 4,030 4,035 0.0% 0.0% 0.0% Biomass 6,550 6,550 6,550 6,350 6,400 6,450 -3.1% -2.3% -1.5% Total power generation (GWh) 48,083 55,158 64,071 48,234 54,608 64,728 0.3% -1.0% 1.0% Coal-fired (self) 16,834 20,111 24,752 15,376 18,939 24,481 -8.7% -5.8% -1.1% Coal-fired (substituted) 0 0 0 650 0 0 n.a. n.a. n.a. Hydro 8,410 8,541 8,854 9,975 9,258 9,323 18.6% 8.4% 5.3%

Wind 17,404 19,177 20,633 17,451 19,056 21,011 0.3% -0.6% 1.8% Solar 1,635 1,711 1,788 1,638 1,742 1,871 0.2% 1.8% 4.7% Distributed 3,633 5,451 7,879 3,633 5,451 7,879 0.0% 0.0% 0.0% Biomass 166 166 166 161 162 163 -3.1% -2.3% -1.5%

Average on-grid tariff (VAT excl.) (RMB/MWh) 408 412 412 399 405 405 -2.3% -1.8% -1.6% (00816 HK) Coal-fired (self) 342 343 339 347 344 341 1.5% 0.4% 0.4% Coal-fired (substituted) n.a. n.a. n.a. 331 n.a. n.a. n.a. n.a. n.a. Hydro 291 292 289 288 289 290 -1.0% -1.0% 0.2%

Wind 436 434 428 417 414 408 -4.5% -4.5% -4.6% 华电福新 Solar 821 821 811 813 808 793 -1.0% -1.6% -2.2% Distributed 663 658 650 663 658 650 0.0% 0.0% 0.0% Biomass 653 658 658 653 658 658 0.0% 0.0% 0.0% Electricity sales (VAT excl.) (RMB Mn) 18,895 21,849 25,281 18,788 21,227 25,133 -0.6% -2.8% -0.6% Coal-fired (self) 5,483 6,556 7,988 5,081 6,201 7,934 -7.3% -5.4% -0.7% Coal-fired (substituted) 0 0 0 215 0 0 n.a. n.a. n.a. Huadian Fuxin Hydro 2,404 2,450 2,512 2,822 2,628 2,650 17.4% 7.3% 5.5% Wind 7,376 8,078 8,570 7,052 7,634 8,306 -4.4% -5.5% -3.1% Solar 1,324 1,385 1,430 1,314 1,385 1,464 -0.8% 0.0% 2.4% Distributed 2,199 3,271 4,672 2,199 3,271 4,672 0.0% 0.0% 0.0% Biomass 108 109 109 105 106 107 -3.1% -2.3% -1.5% Source: Guotai Junan International.

Report

Company

See the last page for disclaimer Page 5 of 9 [Table_PageHeader]Huadian Fuxin (00816 HK)

Table-3: Key financial results adjustments for HDFX Old New Change

] 1 r a M t h g i R _ e l b a T [ 2019F 2020F 2021F 2019F 2020F 2021F 2019F 2020F 2021F

Financials (RMB Mn) Revenue 19,927 22,950 26,420 19,780 22,242 26,168 -0.7% -3.1% -1.0% Other net income 267 271 281 258 246 240 -3.3% -9.1% -14.4% Cost of fuel (6,036) (7,534) (9,527) (5,305) (6,668) (8,615) -12.1% -11.5% -9.6% Cost of substituted electricity 0 0 0 0 0 0 n.a. n.a. n.a. Depreciation and amortization (4,728) (4,917) (5,131) (4,717) (5,009) (5,330) -0.2% 1.9% 3.9%

Service concession construction costs (17) (14) (26) (43) (49) (60) 150.7% 248.5% 133.1% 20 September2019 Personnel costs (1,677) (1,846) (2,070) (1,672) (1,826) (2,093) -0.3% -1.1% 1.1% Repairs and maintenance (556) (616) (696) (567) (628) (724) 2.0% 1.8% 4.1% Coal sales costs (19) (17) (16) (18) (16) (15) -5.9% -5.9% -5.9% Administration expenses (434) (447) (460) (418) (422) (431) -3.8% -5.6% -6.5% Other operating expenses (811) (960) (1,059) (1,037) (987) (1,089) 28.0% 2.8% 2.9% Total operating expenses (14,277) (16,352) (18,984) (13,776) (15,606) (18,358) -3.5% -4.6% -3.3% Operating profit 5,916 6,869 7,717 6,262 6,883 8,051 5.9% 0.2% 4.3% Net finance expenses (2,965) (3,031) (3,285) (2,912) (3,040) (3,310) -1.8% 0.3% 0.8% Profits of associates and JV 1,084 1,146 1,335 749 1,020 1,230 -30.9% -11.0% -7.9% Profit before tax 4,035 4,984 5,768 4,099 4,862 5,971 1.6% -2.4% 3.5% Income tax (495) (612) (709) (503) (597) (733) 1.6% -2.4% 3.4% Profit after tax 3,539 4,372 5,059 3,596 4,265 5,238 1.6% -2.5% 3.5%

] 2 r a M t h g i R _ e l b a T [ Non-controlling interests (552) (703) (758) (562) (681) (781) 1.9% -3.2% 3.1% Perpetual MT note & renewable bonds (457) (441) (322) (531) (604) (485) 16.2% 36.8% 50.4% Net profit 2,531 3,228 3,978 2,503 2,980 3,972 -1.1% -7.7% -0.2% Basic EPS (RMB) 0.301 0.384 0.473 0.298 0.354 0.472 -1.1% -7.7% -0.2% Margins and ratios EBITDA margin 58.9% 56.3% 53.7% 59.3% 58.1% 55.8% 0.4ppt 1.7ppt 2.2ppt Operating margin 29.7% 29.9% 29.2% 31.7% 30.9% 30.8% 2.0ppt 1.0ppt 1.6ppt Net profit margin 12.7% 14.1% 15.1% 12.7% 13.4% 15.2% 0.0ppt -0.7ppt 0.1ppt Effective tax rate 12.3% 12.3% 12.3% 12.3% 12.3% 12.3% 0.0ppt 0.0ppt 0.0ppt

Average borrowing rate 4.60% 4.61% 4.62% 4.60% 4.61% 4.62% 0.00ppt 0.00ppt 0.00ppt Interest coverage ratio 226.7% 253.2% 263.3% 230.2% 244.5% 264.2% 3.5ppt -8.7ppt 0.9ppt ROE 8.2% 10.1% 12.0% 7.7% 8.5% 11.2% -0.5ppt -1.5ppt -0.8ppt Net debt / Shareholder equity 200.0% 200.6% 206.9% 171.2% 183.4% 190.0% -28.8ppt -17.2ppt -17.0ppt

Source: Guotai Junan International. (00816 HK)

Figure-3: Estimated PER Curve of HDFX Figure-4: Estimated PBR Curve of HDFX

华电福新

13 15 16 18 14 17 19

13 15 16 17 19 14 18

13 14 15 16 17 12 18

14 17 19 13 15 16 18

13 14 16 17 19 12 13 14 15 15 16 16 18 19 15 18 13 14 17 17 18

13 15 16 17 19 14 18

------

Aug Aug Aug Aug Aug Aug Aug

Nov Nov Nov Nov Nov Nov Nov

Feb Feb Feb Feb Feb Aug Aug Aug Aug Feb Feb Aug Aug Aug

May May May May May May May

Feb Feb Feb Feb Feb Feb Feb

May May May May May May May

Nov Nov Nov Nov Nov Nov Nov 16 2.5 (X) 14 (X) 2.0 Huadian Fuxin 12 10 1.5 8 6 1.0 4 0.5 2 0 0.0 Huadian Fuxin Huadian Fuxin

PER (historical mean) PER (current) PER (High) PBR (historical mean) PBR (current) PBR (High) PER (Low) PER curve PBR (Low) PBR curve

Source: Bloomberg, Guotai Junan International. Source: Bloomberg, Guotai Junan International.

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Company

See the last page for disclaimer Page 6 of 9 [Table_PageHeader]Huadian Fuxin (00816 HK)

Table-4: Sensitivity Analysis for HDFX EPS (RMB)

] 1 r a M t h g i R _ e l b a T [

EPS Sensitivity Analysis 2019F 2020F 2021F

Base Case EPS (RMB) 0.298 0.354 0.472 Base Case Assumptions QHD5,500Kcal coal price (RMB/t) 600 585 570 Avg coal-fired on-grid tariff (VAT excl.) (RMB/MWh) 347 344 341 Coal-fired utilisation hours (Hrs) 4,207 4,389 4,517 Wind utilisation hours (Hrs) 2,130 2,235 2,265

Hydro utilisation hours (Hrs) 3,825 3,550 3,475 20 September2019 Average borrowing rate 4.60% 4.61% 4.62% EPS (RMB) QHD5,500Kcal coal price +5% 0.283 0.339 0.453 Coal-fired on-grid tariff +5% 0.319 0.382 0.509 Coal-fired utilisation hours +5% 0.305 0.365 0.488 Wind utilisation hours +5% 0.328 0.389 0.511 Hydro utilisation hours +5% 0.309 0.367 0.486 Average borrowing rate +25bps 0.297 0.340 0.458 EPS change (RMB) QHD5,500Kcal coal price +5% (0.015) (0.016) (0.019) Coal-fired on-grid tariff +5% 0.021 0.028 0.037

Coal-fired utilisation hours +5% 0.007 ] 2 r 0.011a M t h g i R _ e 0.015l b a T [

Wind utilisation hours +5% 0.030 0.034 0.039 Hydro utilisation hours +5% 0.011 0.012 0.013 Average borrowing rate +25bps (0.001) (0.014) (0.015) EPS change (%) QHD5,500Kcal coal price +5% -5.0% -4.5% -4.1% Coal-fired on-grid tariff +5% 7.2% 7.9% 7.8% Coal-fired utilisation hours +5% 2.5% 3.1% 3.3% Wind utilisation hours +5% 10.1% 9.6% 8.2% Hydro utilisation hours +5% 3.8% 3.4% 2.8%

Average borrowing rate +25bps -0.4% -4.0% -3.1% Source: Guotai Junan International.

Table-5: Peers Valuation for Clean Energy IPPs (00816 HK)

Mkt cap PER (x) PB (x) ROE (%) Company Ticker Currency Price (HK$ Mn) 2018A 2019F 2020F 2021F 2018A 2019F 2020F 2021F 2019F

Hong Kong Market 华电福新 CHINA LONGYUAN POWER GROUP-H 916 HK HKD 4.67 37,851 8.4 7.7 6.6 5.8 0.7 0.6 0.6 0.5 8.5 HUANENG RENEWABLES CORP-H 958 HK HKD 2.68 28,530 8.1 6.5 5.7 4.8 0.9 0.8 0.7 0.7 13.7 CHINA DATANG CORP RENEWABL-H 1798 HK HKD 0.81 5,964 4.7 3.8 3.5 3.2 0.4 0.4 0.4 0.3 12.0 HUADIAN FUXIN ENERGY CORP -H 816 HK HKD 1.45 12,192 5.4 4.5 3.7 2.8 0.4 0.3 0.3 0.3 7.7

CGN NEW ENERGY HOLDINGS CO L 1811 HK HKD 0.94 3,990 5.8 5.0 4.8 4.0 0.6 0.5 0.5 0.4 11.2 Huadian Fuxin CGN POWER CO LTD-H 1816 HK HKD 2.01 212,665 9.2 9.1 8.3 8.1 1.1 1.1 1.0 0.9 12.8 BEIJING JINGNENG CLEAN ENE-H 579 HK HKD 1.31 10,965 4.3 4.6 4.1 3.8 0.4 0.4 0.4 0.4 14.0

Hong Kong Market Mean (Simple) 6.6 5.9 5.3 4.7 0.6 0.6 0.6 0.5 11.4 Hong Kong Market Mean (Weighted) 8.6 8.2 7.4 7.0 1.0 0.9 0.8 0.8 12.1 Hong Kong Market Median 5.8 5.0 4.8 4.0 0.6 0.5 0.5 0.4 12.0 Source: Bloomberg, Guotai Junan International.

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See the last page for disclaimer Page 7 of 9 [Table_PageHeader]Huadian Fuxin (00816 HK)

Financial Statements and Ratios [Table_IncomeStatement] Income Statement [Table_BalanceSheet] Balance Sheet

] 1 r a M t h g i R _ e l b a T [

Year end 31 Dec (RMB m) 2017A 2018A 2019F 2020F 2021F Year end 31 Dec (RMB m) 2017A 2018A 2019F 2020F 2021F

Total Revenue 16,813 18,330 19,780 22,242 26,168 PP&E 81,191 80,930 84,367 89,081 95,796

Other Net Income & Gains 210 343 258 246 240 Lease prepayments/Right-of-use assets 1,428 1,428 2,284 2,058 1,741

Cost of fuel (4,601) (5,877) (5,305) (6,668) (8,615) Intangible assets 1,299 1,359 1,389 1,425 1,479 Investment in associate 8,190 8,985 9,572 10,634 11,646 Cost of substituted electricity 0 0 0 0 0 Deferred tax assets 377 369 411 443 482 D&A (4,354) (4,570) (4,717) (5,009) (5,330) Other non-current assets 3,431 3,077 1,580 890 400 Service concession costs (133) (80) (43) (49) (60)

Total Non-current Assets 95,915 96,146 99,602 104,531 111,545 20 September2019 Personnel costs (1,383) (1,599) (1,672) (1,826) (2,093) Cash & Cash Equivalents 2,122 3,598 5,600 3,826 3,705 R&M (462) (527) (567) (628) (724) Inventories 277 414 366 437 542 Coal sales cost (18) 0 (18) (16) (15) Trade receivable 6,992 5,970 6,490 6,081 6,439 Administration expenses (512) (422) (418) (422) (431) Prepayments 1,919 2,154 1,651 1,738 1,846 Other operating expenses (699) (787) (1,037) (987) (1,089) Tax recoverable 10 16 16 19 24 Operating Profit 4,861 4,809 6,262 6,883 8,051 Other current assets 5 6 417 7 7 Finance income 110 82 69 106 84 Total Current Assets 11,325 12,157 14,539 12,109 12,563 (2,910) (3,073) (2,980) (3,146) (3,394) Finance expenses Total Assets 107,240 108,304 114,141 116,640 124,108

Profits of associates and JV 742 940 749 1,020 1,230

Profit Before Tax 2,802 2,758 4,099 4,862 5,971 Current borrowings 15,382 10,868 13,151 13,580 14,501

Income Tax (337) (285) (503) (597) (733) Finance leases obligations 26 26 0 0 0

2,466 2,473 3,596 4,265 5,238 Trade payable 1,081 1,104 1,129 1,402 1,794 profit After Tax ] 2 r a M t h g i R _ e l b a T [

Perpetual MT note & renewable bonds (348) (204) (562) (681) (781) Other payables 8,715 7,220 6,077 6,295 7,123

Non-controlling Interest (131) (275) (531) (604) (485) Other current liabilities 163 127 419 191 224

Shareholders' Profit / Loss 1,986 1,993 2,503 2,980 3,972 Total Current Liabilities 25,366 19,345 20,777 21,468 23,641 Non-current borrowings 53,779 54,096 52,605 54,321 58,004 Basic EPS 0.236 0.237 0.298 0.354 0.472

Lease obligations/liabilities 226 291 563 491 410 Deferred income 483 462 441 424 409 [Table_CashFlowStatement] Cash Flow Statement Deferred tax liabilities 918 1,008 1,095 1,181 1,286 Year end 31 Dec (RMB m) 2017A 2018A 2019F 2020F 2021F Total Non-current Liabilities 55,406 55,857 54,703 56,415 60,110 PBT 2,802 2,758 4,099 4,862 5,971 Total Liabilities 80,773 75,202 75,480 77,884 83,751

D&A 4,354 4,570 4,717 5,009 5,330

Interest income (53) (31) (52) (81) (56) Total Shareholders' Equity 23,424 30,055 35,141 34,929 36,219

Interest expenses 2,891 3,031 2,903 3,066 3,312 Minority Interest 3,043 3,047 3,520 3,827 4,138

Dividend income (47) (51) (17) (26) (29) Total Equity 26,467 33,102 38,661 38,756 40,357 (00816 HK) Profits of associates and JV (742) (940) (749) (1,020) (1,230) BPS 2.786 3.575 4.180 4.154 4.308

Other adjustments 17 (41) (12) 42 45

Changes in working capital (768) 1,707 (4) 439 (73) [Table_FinancialRatio] 华电福新 Income tax paid (415) (300) (415) (518) (637) Financial Ratios

Cash from Operating Activities 8,038 10,703 10,470 11,774 12,632 2017A 2018A 2019F 2020F 2021F

Investing activities Margins & Efficiency:

Payments for PP&E (9,133) (6,176) (9,184) (9,587) (11,510) EBITDA Margin (%) 59.2 56.3 59.3 58.1 55.8 Operating Margin (%) 28.9 26.2 31.7 30.9 30.8 Payments for subsidiaries (173) 0 100 100 100 Huadian Fuxin Payments for interest in associates (885) (643) (866) (866) (866) Net Profit Margin (%) 11.8 10.9 12.7 13.4 15.2 Dividends received 619 685 1,044 849 1,113 Inventory Days 19.9 23.6 22.7 21.8 21.2

Interest received 59 28 52 81 56 Receivable Days 151.8 118.9 119.8 99.8 89.8

Others 163 56 2 2 2 Payable Days 77.7 62.9 70.0 70.0 70.0

Cash from Investing Activities (9,350) (6,049) (8,851) (9,421) (11,105) Growth%:

Financing activities Revenue 5.1 9.0 7.9 12.4 17.7

Net proceeds from issuance of shares 0 0 0 0 0 Operating Profit (10.1) (1.1) 30.2 9.9 17.0

Proceeds from borrowings 22,322 27,516 24,500 26,500 27,500 Net Profit 1.7 0.4 25.6 19.1 33.3

Government grant received 0 0 35 36 37 Profitability:

Repayment of borrowings (19,874) (31,641) (23,708) (24,356) (22,896) ROE (%) 9.1 7.5 7.7 8.5 11.2

Dividends paid (803) (822) (919) (1,035) (1,238) ROA (%) 1.9 1.8 2.3 2.6 3.3

Interest paid (3,172) (3,221) (3,074) (3,224) (3,498) ROCE (%) 5.3 5.4 6.2 6.7 7.5

Payments of lease obligations/liabilities (37) (37) (94) (98) (103) Financial Ratios:

Others 2,083 5,026 3,667 (1,925) (1,425) Net Gearing (%) 287.3 205.2 171.2 183.4 190.0

Cash from Financing Activities 520 (3,179) 406 (4,103) (1,624) Dividend Yield (%) 4.6 4.5 5.3 6.2 8.3

Net Changes in Cash (792) 1,474 2,025 (1,750) (97) Current Ratio (x) 0.4 0.6 0.7 0.6 0.5 Report Cash at Beg of Year 2,895 2,122 3,598 5,600 3,826 Interest Coverage Ratio (x) 1.8 1.8 2.3 2.4 2.6

FX rate changes 18 2 (23) (24) (24)

Cash at End of Year 2,122 3,598 5,600 3,826 3,705

Company

Source: the Company, Guotai Junan International.

See[Table_CompanyRatingDefinition] the last page for disclaimer Page 8 of 9 [Table_PageHeader]Huadian Fuxin (00816 HK)

Company Rating Definition

The Benchmark: Hong Kong Hang Seng Index ] 1 r a M t h g i R _ e l b a T [

Time Horizon: 6 to 18 months

Rating Definition Buy 买入 Relative Performance>15%; or the fundamental outlook of the company or sector is favorable. Accumulate 收集 Relative Performance is 5% to 15%; or the fundamental outlook of the company or sector is favorable. Neutral 中性 Relative Performance is -5% to 5%; or the fundamental outlook of the company or sector is neutral. 20 September2019 Reduce 减持 Relative Performance is -5% to -15%; or the fundamental outlook of the company or sector is unfavorable.

Sell 卖出 Relative Performance <-15%; or the fundamental outlook of the company or sector is unfavorable.

Sector[Table_ RatingIndustry DefinitionRatingDefinition] The Benchmark: Hong Kong Hang Seng Index Time Horizon: 6 to 18 months Rating Definition Outperform 跑赢大市 Relative Performance>5%;

] 2 r a M t h g i R _ e l b a T [

or the fundamental outlook of the sector is favorable. Neutral 中性 Relative Performance is -5% to 5%; or the fundamental outlook of the sector is neutral. Underperform 跑输大市 Relative Performance<-5%; Or the fundamental outlook of the sector is unfavorable.

DISCLOSURE[Table_DISCLOSUREOFINTERESTS OF INTERESTS ] (1) The Analysts and their associates do not serve as an officer of the issuer mentioned in this Research Report. (2) The Analysts and their associates do not have any financial interests in relation to the issuer mentioned in this Research Report. (3) Except for KAISA GROUP (01638 HK),GUOTAI JUNAN I (01788 HK),JXR (01951 HK),BANK OF GANSU (02139 HK),JINSHANG BANK (02558 HK),ZHONGLIANG HLDG (02772 HK),BINHAI INVESTMENT (02886 HK),CAM SCSMALLCAP (03157 HK),HAITIAN ANTENNA (08227 HK),Guotai Junan and its group companies do not hold equal to or more than 1% of the market capitalization of the issuer mentioned in this Research Report.

(4) Guotai Junan and its group companies have not had investment banking relationships with the issuer mentioned in this Research (00816 HK) Report within the preceding 12 months. (5) Guotai Junan and its group companies are not making a market in the securities in respect of the issuer mentioned in this Research Report.

(6) Guotai Junan and its group companies have not employed an individual serving as an officer of the issuer mentioned in this Research 华电福新 Report. There is no officer of the issuer mentioned in this Research Report associated with Guotai Junan and its group companies.

DISCLAIMER Huadian Fuxin

This Research Report does not constitute an invitation or offer to acquire, purchase or subscribe for securities by Guotai Junan Securities (Hong Kong) Limited ("Guotai Junan"). Guotai Junan and its group companies may do business that relates to companies covered in research reports, including investment banking, investment services, etc. (for example, the placing agent, lead manager, sponsor, underwriter or invest proprietarily).

Any opinions expressed in this report may differ or be contrary to opinions or investment strategies expressed orally or in written form by sales persons, dealers and other professional executives of Guotai Junan group of companies. Any opinions expressed in this report may differ or be contrary to opinions or investment decisions made by the asset management and investment banking groups of Guotai Junan.

Though best effort has been made to ensure the accuracy of the information and data contained in this Research Report, Guotai Junan does not guarantee the accuracy and completeness of the information and data herein. This Research Report may contain some forward-looking estimates and forecasts derived from the assumptions of the future political and economic conditions with inherently unpredictable and mutable situation, so uncertainty may contain. Investors should understand and comprehend the investment objectives and its related risks, and where necessary consult their own financial advisers prior to any investment decision.

This Research Report is not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject Guotai Junan and its group companies to any registration or licensing requirement within such jurisdiction.

© 2019 Guotai Junan Securities (Hong Kong) Limited. All Rights Reserved. Report 27/F., Low Block, Grand Millennium Plaza, 181 Queen’s Road Central, Hong Kong. Tel.: (852) 2509-9118 Fax: (852) 2509-7793

Website: www.gtja.com.hk

Company

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