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Wind Power Operators:Diversified-play will outperform

Date:2012/10/18/ 14:36

The uncontrollable factor is moving into favour to wind poweroperators: The small wind phenomenon which has started since 2H2011,was one of the major reasons that caused the low utilization hours in thewind power industry even during the peak season. But wind resources haveimproved since Jun 2012. According to NBSC, electricity generated fromwind power increased 62.5%YoY in Jul and 67.6%YoY in Aug. As it hasnow entered the low base period, we expect utilization hours of the windpower industry will continue to improve.

Less sensitive to CERs prices: The significant drop in CERs revenue dueto a substantial drop in CERs prices were already reflected the in the1H2012 results in some of the wind operators. On average, CERs/EBITdropped from an average of 17% to 9% in 1H2012. The smaller proportionof CERs to EBIT means the profitability of the wind power operators arenow less sensitive to the change in CERs prices.

Takes time to solve wind curtailment problem: Wind curtailment rateincreased in 1H2012 especially in Inner Mongolia and the Northeastern partof China. We believe the problem will not be solved until a comprehensivegrid network is built. Therefore, industry players with a diversified play orthose who can successfully implement their ‘moving-south’ strategy willoutperform.

Our top picks: We give a HOLD rating on the pure wind power operator,Huaneng Renewable. Our Sell is Datang Renewables. Also we have a BUYrating on Huadian Fuxin, who is set to benefit from its diversified businessstructure, especially the hydro power business.

Risk factors: Change in government subsidy policy, under-performancesrisks of wind turbines, high gearing


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