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00836 CHINA RES POWER
RTNominal up19.840 +0.640 (+3.333%)
Research Report

06/04/2020 14:01

Softening coal prices support CR Power's large capex plans

[ET Net News Agency, 6 April 2020] S&P Global Ratings said that its rating on China
Resources Power Holdings Co. Ltd. (CR Power; BBB/Stable/--)(00836) is supported by
softening coal prices.
This could help the China-based, Hong Kong-listed company ride through its significantly
scaled-up capital expenditure (capex) over the coming 12-18 months.
CR Power's 2019 results beat S&P's expectation. The company's ratio of funds from
operations (FFO) to debt improved to an estimated 19.1%, from 17.7% in 2018, and was
stronger than S&P's forecast 14%-16%.
This was primarily owing to better EBITDA margin (unadjusted for dividends received from
investees) of 33.7%, from 29.7% in 2018, despite revenue decline of 11.9%. Half of the
increase in the margin was because of a 7.6% decline in unit fuel cost. The other half is
mainly attributable to a higher proportion of revenue from renewables, which are
high-margin and shedding fixed costs associated with divested coal operations.
Accordingly, CR Power's EBITDA grew by 3.6% to HK$25 billion in 2019. The HK$6.0 billion
increase in the company's net debt to HK$96.9 billion was also lower than the HK$8 billion
the agency had expected.
Softening coal costs and the growing renewables segment should outweigh the effects of
the economic slump over the next 12 months, enabling earnings and cash flow accretion for
CR Power. This was evident when coal prices plummeted as China's power demand growth
slowed to 4.5% in 2019 (prior year: 8.5%) and 2.8% in 2015 (prior year 4.2%),
respectively. Our base case assumes a mid-single-digit coal price decline in 2020. On top
of that, the company's aggressive commissioning of wind power can contribute meaningful
growth in revenue and EBITDA, given the intact priority dispatch policy. (KL)

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