The company positions itself as an electric source integration platform of Hebei Jointo group, and its development strategy is to realize external expansion through successive acquisition of the group assets. It is predicted that the company is likely to handle its reserved projects to the listed company for follow-up investment and construction, thus the company is more expected to acquire resources of project from its parent, and expectation of successive growth is becoming clearer.
The company is served for South Power Network in Hebei province, in which iron & steel industry is of pillar industry, and its power consumption is ~50% of the second industry within the region. Besides, comparing with most regions in China, agricultural irrigation is another important factor for power supply & demand. It is initially calculated that power demand of the region is to increase by 3% in 2009.
It is predicted that unit capacity of South Power Network unicontrol in Hebei is to increase by 3.25mnKw (+15.4% yoy) in 2009. Accordingly, its generating hours will be comparatively lessened by 12% yoy to 4,550 hours.
Price of key contract coal is to decrease rather than to ascend. It is predicted that price of key contract coal in 2009 will rise 5-8% compared with that of the previous year, but will be substantially declined than that of 2008 yearend (with China Shenhua Energy Co., Ltd as an exemption).
Owning relaxed supply & demand atmosphere, we predict that market price of its purchased coal is still likely to decline.
It is predicted that the company’s EPS in 2008-2010E is Rmb0.30 and Rmb0.36. Top-quality assets, high-efficiency management and a clear long-term development skeleton enable the company a successive growth. We are optimistic about the company’s long-term investment; however, given its recent price hike, we hereby keep its rating suspended.