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Asia China
Utilities Utilities
25 February 2009
Asian Power/Utilities
Meter Reading February
Michael Tong, CFA
Research Analyst
(852) 2203 6167
michael.tong@db.com
Eric Cheng, CFA
Research Analyst
(852) 2203 6202
eric-ct.cheng@db.com
DB Asia Utility Meter Reading January
The DB Asia Utility Monthly tracks key metrics including fuel price, freight, Forex,
treasury yield, & power demand growth across the region, reviews the local
newsflow, summarises the recent sector research from Deutsche Bank & contains
detailed share price performance & sector comps.
Deutsche Bank AG/Hong Kong
All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local
exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche
Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm
may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision. Independent, third-party research (IR) on certain companies covered by DBSI's research
is available to customers of DBSI in the United States at no cost. Customers can access IR at
http://gm.db.com/IndependentResearch or by calling 1-877-208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE
LOCATED IN APPENDIX 1.
Industry Update
Top picks
Beijing Enterprises (0392.HK),HKD29.50 Buy
Guangdong Investment (0270.HK),HKD3.06 Buy
PGN (PGAS.JK),IDR2,030.00 Buy
Aboitiz Power (AP.PS),PHP4.05 Buy
Huadian Power (1071.HK),HKD1.53 Buy
Michael Tong, CFA
(852) 2203 6167
michael.tong@db.com
Eric Cheng, CFA
(852) 2203 6202
eric-ct.cheng@db.com
Global Markets Research Company
Monthly focus: HK utility players
After strong outperformance in 2008, we believe the defensive nature of HK utility
stocks is priced in. With predictable earnings from existing assets, we believe
2009 stock performance will be mainly driven by deal flows. We rate CKI with Buy
as we believe it has the highest potential earnings upside in the industry. We
maintain Holds on HK Electric, CLP Holdings and Hong Kong & China Gas.
Commodity, freights, currencies and treasure yields
Over the past month, coal price at Newcastle was largely stable at around US$80/t
while coal price at Qinhuangdao fell by 5%. WTI was further down to US$39/barrel
from US$44/s in late Jan. BDI witnessed some rebound from ~900 to ~2,000
while it is still at the bottom end of its historical range. On FX side, most
currencies showed small range-bound except KRW/US$ (~1,500 on Feb 20 from
~1,400 a month earlier). Both US 10-yr treasury yield and HK 10-yr government
bond yield registered some up-ticks after falling for 6 continuous months.
Recent DB sector research – four “Upgraded to Buy”
We recently upgraded CKI to Buy on its attractive acq. upside in 2009. We
upgraded Tenaga to Buy given declining risk of cost pass-through delays & its
compelling valuation. We upgraded Manila Water to Buy as we see its NPV value
intact despite delays in tariff hike. We upgraded Xinao Gas to Buy for its robust
gas sales growth outlook & attractive valuation. We reiterated our preference on
EGCO over Ratchaburi following their results announcement. We reiterated Buy
on PGN for its secured volume growth & resilient gas tariff in 2009. We maintain
Hold on Kepco for the stock’s 09E PBR of 0.4x even posting a record loss in 4Q08.
News from the local press
Key news over the past month: a 12.3% yoy decline in China’s generation output
in Jan, more international coal buying by China IPPs; coal contracts settled
between Kepco & Australian suppliers; HKE’s planned acq. of CKI’s gencos in
China; Tenaga’s tariff cut & reduction in gas price announcement; Kogas’s loss in
4Q due to weak demand.
Share price movement and valuations
Absolute performances in the Power/Utilities space were positive for most stocks
as markets were largely flat. Most stocks outperformed their respective market
indices. Meralco was the best performer (+50%) on speculative buying for the
ownership control conjecture. Other top performers: small-caps like FPH, CEI,
FGEN, Huadian, Aboitiz Power on improving liquidity & deep value discount. Kogas
was the worst performer following a loss in 4Q08 with b/s significantly worsened
after a delay in tariff hike. We use a DCF model to value most of the Asian
Power/Utilities stocks. Risks: related to regulation, commodity price volatility, GDP
growth rates and currency movements.
Table of Contents
Focus: HK Utilities ............................................................................. 4
Investment thesis .....................................................................................................................4
Risks ........................................................................................................................................5
Commodity & freight prices ............................................................. 6
Earnings exposure ....................................................................................................................6
Key movement over the past month.........................................................................................6
Currency exchange............................................................................ 8
Monthly electricity demand ........................................................... 10
10-year gov’t bond yields................................................................ 11
Upcoming events............................................................................. 12
DB research ...................................................................................... 13
Summary................................................................................................................................13
Tata Power Alert - A greater degree of transparency..............................................................14
Manila Water Alert - Regulator approves inflation component of tariff increase.....................14
Manila Water - What is it really worth? Upgrade to Buy ........................................................15
Asset transfer from CKI to HKE...............................................................................................15
Kepco - Record losses in 4Q; maintain Hold on long-term value ............................................16
Tenaga Nasional BHD Alert - Cheaper electricity from March ................................................17
HK Electric - Good China move but less ammunition now; Hold ............................................17
CLP Holdings - Focus on greenfield projects; maintain Hold ..................................................18
CKI - One step backward, two steps forward; Buy .................................................................19
Towngas China - Countdown for likely asset transfer from HKCG..........................................19
Hong Kong & China Gas - Cash-rich; shopping for more Mainland assets..............................20
Tenaga Nasional BHD - Fuel risk largely mitigated; upgrade to Buy on valuation ...................21
KOGAS - 4Q results disappoint, but upgrade to Hold on valuation .........................................22
Manila Electric Company - Risk outweighs reward; downgrade to Sell ..................................23
PGN – resilient despite economic slowdown .........................................................................23
Ratchaburi - Little downside risk; maintain Buy but prefer EGCO...........................................24
Thai Tap Water Supply PCL - TP revised up due to lower cost of debt...................................25
Electricity Generating - Our preferred Thai IPP .......................................................................25
China Gas Holdings - Slightly better outlook but maintain Hold ..............................................26
XinAo Gas - Negative concerns see priced in; upgrade to Buy ...............................................27
Recent newsflow ............................................................................. 28
China......................................................................................................................................28
Hong Kong ..............................................................................................................................30
Malaysia.................................................................................................................................30
Philippines..............................................................................................................................31
Thailand..................................................................................................................................33
Indonesia................................................................................................................................33
Korea......................................................................................................................................33
Share price performance and sector comps ................................. 35
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