nomura power fy11preview

8/2/2019 Nomura Power FY11preview

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Asia Utilities/RenewablesPOWER & UTILITIES

EQUITY RESEARCH

FY11F earnings preview

Best year after us - take profiton defensive; look for recoveryand policy-driven plays

February 27, 2012

Take profit on defensive namesAsia utilities' FY11 results season kicked off last week by ASEANcountries. So far the results were stronger than expectations; however, wesee that a challenging environment remains for 2012F amid a potential

export-driven slowdown. Nevertheless, markets like HK, Indonesia, thePhilippines, Thailand, Australia and New Zealand are defensive plays, inour view, given the attractive regulatory regimes with the fixed return onasset base and immediate fuel cost pass-through. However, the market isgradually taking on risk in anticipation of a recovery in 2H, in our view; thisdoes not provide a positive backdrop for defensive utilities. Thus, potentialunderperformance of HK, Indonesia, the Philippines, Thailand, Australiaand New Zealand utilities is likely for the rest of the year. We recommendthat investors take profits in these markets.

Key themes for 2012: utilities tariff reforms and climate change policyOn the contrary, "utilities tariff reforms" in China and Korea will be a keytopic for 2012 and we expect strong earnings recoveries in China IPP andKepco amid rising tariffs, falling interest rates and lower commodity prices.The other big theme in Asia is "climate change policy"; we believe thosehigh CO2 emission countries (eg, China and India) will strengthen theirefforts to cap CO2 and energy intensities by introducing more favourablepolicies towards clean energy - natural gas and renewables. Therefore, webelieve natural gas distributors, nuclear plays and wind farms shouldbenefit on their moves to diversify from coal, while coal producers shouldface a slowing demand growth. In contrast to the market, we are optimisticon the development of Nuclear and third-generation technology in China.Despite the recent solar rally, we affirm that this sector is likely to takeanother year to consolidate and recover. Thus, we believe now is a goodopportunity for investors to take profits on solar.

Research analysts

AEJ Power & Utilities

Ivan Lee, CFA - NIHK

[email protected]

+852 2252 6213

ASEAN Power & Utilities

Daniel Raats - NIHK

[email protected]+852 2252 2197

India Power & Utilities

Anirudh Gangahar - NFASL

[email protected]+91 22 4037 4516

Australia Power & Utilities

David Fraser - NAL

[email protected]

+61 2 8062 8418

Korea Power & Utilities

Keith Nam - NFIK

[email protected]+82 2 3783 2304

China Power & Utilities

Joseph Lam, CFA - NIHK


Alan Hon - NIHK


Asia Solar

Nitin Kumar - NSL


See Appendix A-1 for analystcertification, importantisclosures and the status of

non-US analysts.


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Nomura | Asia Utilities/Renewables February 27, 2012

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Stocks for actionFig. 1: Model Portfolio

Note: Ratings and Price targets are as of the date of the most recently published report (http://www.Nomura.com) ratherthan the date of this document. Priced as of 24-Feb-12 market close. Complete record on request. For changes in theportfolio over time, see http://go.nomuranow.com/research/globalresearchportal/getpub.aspx?pid=497004

Source: Bloomberg, Nomura research Note:* PT under review

Company Ticker Rating

Price

target Price

(Local $) (Local $) 10 11F 12F 10 11F 12F 10 11F 12F

Top Buys

China Coal Energy 1898 HK Buy 12.25 10.04 15.2 10.2 8.5 1.5 1.3 1.2 1.8 2.6 3.1

CPID 2380 HK Buy 2.97 1.95 12.5 14.6 6.2 0.7 0.6 0.6 2.7 2.7 6.1

Huaneng Power 902 HK Buy 6.37 4.94 15.7 32.7 8.1 1.1 1.1 0.9 4.7 1.6 6.2

China Resources Gas 1193 HK Buy 14.46 11.20 22.1 18.4 16.0 3.6 3.1 2.7 0.7 1.1 1.2

BJ Enterprises 392 HK Buy 58.60 48.55 21.8 19.3 16.4 1.6 1.5 1.4 1.4 1.6 1.9

Shanghai Electric* 2727 HK Buy 4.70 4.25 16.5 13.3 11.9 1.7 1.5 1.4 1.8 2.3 2.5

Beijing Enterprises Water 371 HK Buy 3.00 2.04 16.0 18.6 14.4 2.4 1.7 1.5 na na na

Perusahaan Gas Negara* PGAS IJ Buy 3,900 3,600 12.7 14.7 14.3 6.3 5.2 4.6 4.3 4.7 4.3

Glow GLOW TB Neutral 62.00 54.00 17.5 17.3 10.4 2.3 2.2 1.9 3.4 3.6 4.1

NTPC* NTPC IN Buy 206.00 183.70 19.0 17.1 16.7 2.4 2.2 2.1 2.4 2.4 2.5

Power Grid* PWGR IN Buy 120.00 114.30 22.5 19.6 17.6 3.0 2.5 2.3 1.5 1.8 2.1

Top Sells

China Gas 384 HK Neutral 3.32 3.70 18.2 30.7 18.5 3.0 2.1 1.8 0.4 0.6 0.7

Xinjiang Goldwind 2208 HK Reduce 3.50 5.12 4.4 12.6 15.2 0.8 0.8 0.8 9.1 3.2 2.6

Canadian Solar* CSIQ US Neutral 3.40 4.02 1.8 na na 0.3 0.3 0.4 na na na

JA Solar JASO US Neutral 2.00 1.94 1.2 10.2 na 0.3 0.3 0.4 na na na

LDK Solar LDK USReduce 2.60 5.97 2.7 na na 0.8 0.6 0.7 na na na

JSW Energy* JSW IN Reduce 65.00 63.05 13.9 12.3 7.3 2.2 1.8 1.5 1.4 na na

Reliance Power* RPWR IN Reduce 136.00 119.15 41.8 39.3 34.6 2.0 1.9 1.8 na na na

Meralco MER PM Reduce 134.10 269.00 20.1 16.1 15.9 4.7 3.9 3.4 1.5 2.2 2.4

P/E (x) P/B (x) Yield (%)
http://go.nomuranow.com/research/globalresearchportal/getpub.aspx?pid=497004http://go.nomuranow.com/research/globalresearchportal/getpub.aspx?pid=497004


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FY11 earnings previewFig. 2: Upcoming results announcements

Note: *Bloomberg estimates

Source: Nomura research

Ticker Com pany Reporting date Period

TSL US Trina Solar 2/23/2012 4Q11

AGK AU AGK AU equity 2/24/2012 1H12

2 HK CLP Holdings 2/27/2012 FY11

JASO US JA Solar 24 to 29 Feb 4Q11

967 HK Sound Global Ltd 2/28/2012 FY11

YGE US Yingli Green 2/29/2012 4Q11PGAS IJ Perusahaan Gas March FY11

EDC PM Energy Development Early March FY11

6 HK Pow er Assets Holdings Ltd. 3/7/2012 FY11

CSIQ US Canadian Solar 3/7/2012 4Q11

STP US Suntech 3/8/2012 4Q11

1038 HK CKI 3/8/2012 FY11

1193 HK China Resources 3/13/2012 FY11

3800 HK GCL Poly 10 to 15 March 2H11

6244 TT Motech Industries 12 to 15 March 4Q11

1083 HK Tow ngas China 3/16/2012 FY11

1133 HK Harbin Pow er 3/16/2012 FY11

3 HK Hong Kong & China Gas 3/19/2012 FY11

836 HK China Resources 3/19/2012 FY11270 HK Guangdong Investment 3/19/2012 FY11

LDK US LDK 13 to 23 March 4Q11

902 HK Huaneng Pow er Intl 3/20/2012 FY11

1065 HK Tianjin Capital 3/22/2012 FY11

2380 HK China Pow er Intl 3/23/2012 FY11

658 HK China High Speed 3/23/2012 FY11

2208 HK Xinjiang Goldw ind 3/23/2012 FY11

2727 HK Shanghai Electric 3/23/2012 FY11

1171 HK Yanzhou Coal Mining 3/24/2012 FY11

991 HK Datang Intl 3/26/2012 FY11

1088 HK China Shenhua Energy 3/26/2012 FY11

916 HK China Longyuan 3/26/2012 FY11

2688 HK ENN Energy 3/27/2012 FY11757 HK Solargiga 3/28/2012* 2H11

1071 HK Huadian Pow er Intl 3/28/2012 FY11

1898 HK China Coal Energy 3/28/2012 FY11

371 HK Beijing Enterprises 3/29/2012 FY11

1072 HK Dongfang Electric 3/29/2012 FY11

392 HK Beijing Enterprises 3/30/2012 FY11

1393 HK Hidili Industry End of March FY11

639 HK Shougang Fushan End of March FY11

3452 TT E-Ton Solar Tech 4/20/2012* 4Q11


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Fig. 3: Reporting dates and forecasts of upcoming results for Asia ex-Japan stocks

Notes: *Amount in bn units

Source: Bloomberg, company data, Nomura estimates

Company TickerReporting

currencyRating

Price

Target

Reporting

period

Est. DPS

for the period

Likely earnings

surprise

Management Bloomberg Nomura Consensus %diff.

(Local $) (Local $mn) y-y (%) (Local $) (Local $mn) (Local $mn) (+, -, inline)

Power Assets Holdings Ltd. 6 HK HKD Buy 57.3 FY11 8,541 17% 2.20 3/7/2012 3/7/2012 8,541 8,928 -4% In line

CLP Holdings 2 HK HKD Neutral 65.2 FY11 9,648 -4% 2.48 2/27/2012 2/27/2012 9,648 9,787 -1% -

Hong Kong & China Gas 3 HK HKD Reduce 16.5 FY11 5,295 9% 0.45 3/19/2012 3/15/2012 5,295 5,851 -10% +

CKI 1038 HK HKD Neutral 38.6 FY11 7,466 48% 1.66 3/8/2012 3/8/2012 7,466 7,674 -3% In line

Hong Kong utilities average 7,738 17% 1.70

Datang Intl 991 HK CNY Neutral 2.88 FY11 1,588 -38% 0.04 3/26/2012 3/28/2012 1,588 1,713 -7% In line

Huaneng Power Intl 902 HK CNY Buy 6.37 FY11 1,687 -50% 0.07 3/20/2012 3/29/2012 1,687 1,681 0% In line

Huadian Power Intl 1071 HK CNY Buy 2.31 FY11 103 -39% 0.00 3/28/2012 3/30/2012 103 -112 NM +

China Power Intl 2380 HK CNY Buy 2.97 FY11 624 -6% 0.04 3/23/2012 3/30/2012 624 577 8% In lineChina Resources Power 836 HK HKD Buy 17.8 FY11 4,873 -1% 0.27 3/19/2012 3/19/2012 4,873 4,909 -1% In line

China power average 1,775 -27% 0.08

China Shenhua Energy 1088 HK CNY Neutral 38.1 FY11 45,675 20% 0.92 3/26/2012 3/2/2012 45,675 46,127 -1% +

China Coal Energy 1898 HK CNY Buy 12.3 FY11 10,391 39% 0.21 3/28/2012 4/12/2012 10,391 10,274 1% +

Yanzhou Coal Mining 1171 HK CNY Reduce 17.1 FY11 9,042 26% 0.54 3/24/2012 3/27/2012 9,042 8,846 2% -

Hidili Industry 1393 HK CNY Neutral 6.11 FY11 826 23% 0.07 End of March 3/29/2012 826 668 24% -

Shougang Fushan 639 HK HKD Buy 5.27 FY11 2,508 25% 0.03 End of March 3/29/2012 2,508 2,224 13% -

China coal average 13,688 27% 0.35

Suntech STP US USD Neutral 2.20 4Q11 -58 NM 0.00 3/8/2012 3/8/2012 -140 -267 -48% In line

Canadian Solar CSIQ US USD Neutral 3.40 4Q11 -18 NM 0.00 3/7/2012 3/9/2012 -22 -39 -43% In line

Trina Solar TSL US USD Buy 7.00 4Q11 -31 NM 0.00 2/23/2012 2/23/2012 -3 -13 -76% +

Yingli Green YGE US CNY Neutral 3.40 4Q11 -190 NM 0.00 2/29/2012 2/17/2012 537 18 NM -

LDK LDK US USD Reduce 2.60 4Q11 -39 NM 0.00 13 to 23 March 3/16/2012 -10 -114 -91% -

JA Solar JASO US USD Neutral 2.00 4Q11 -10 NM 0.00 24 to 29 Feb 2/22/2012 7 -242 -103% In line

Solargiga 757 HK CNY Reduce 1.10 2H11 256 48% 0.00 NA 3/28/2012 315 254 24% -

GCL Poly 3800 HK HKD Neutral 2.50 2H11 1,255 -61% 0.00 10 to 15 March 3/19/2012 4,805 5,113 -6% In line

China solar average 146 NM 0.00

China Everbright 257 HK HKD Buy 3.90

Guangdong Investment 270 HK HKD Neutral 5.30 FY11 2,558 5.7% 0.09 3/19/2012 4/2/2012 2,558 2,659 -4% In line

China Water Affairs 855 HK HKD Neutral 2.40

Beijing Enterprises Water 371 HK HKD Buy 3.00 FY11 723 41% 0.00 3/29/2012 4/2/2012 723 722 0% In line

Hyflux Limited HYF SP SGD Reduce 1.00

Sound Global Ltd 967 HK CNY Buy 4.40 FY11 419 45% 0.07 2/28/2012 3/5/2012 419 408 3% -

Tianjin Capital 1065 HK CNY Reduce 1.80 FY11 253 -7% 0.10 3/22/2012 3/26/2012 253 276 -8% In line

China water average 988 21% 0.07

ENN Energy 2688 HK CNY Buy 29.1 FY11 1,345 32% 0.32 3/27/2012 3/26/2012 1,345 1,275 5% In line

Towngas China 1083 HK HKD Neutral 4.16 FY11 543 46% 0.04 3/16/2012 3/16/2012 543 564 -4% In line

China Resources Gas 1193 HK HKD Buy 14.5 FY11 1,190 71% 0.10 3/13/2012 3/16/2012 1,190 1,141 4% In line

China Gas 384 HK HKD Neutral 3.32

Beijing Enterprises 392 HK HKD Buy 58.6 FY11 2,939 5% 0.53 3/30/2012 4/2/2012 2,939 2,907 1% In line

China gas average 3,008 77% 0.50

China High Speed 658 HK CNY Neutral 4.69 FY11 730 -47% 0.14 3/23/2012 3/30/2012 730 780 -6% In line

China Longyuan 916 HK CNY Buy 7.40 FY11 2,698 49% 0.05 3/26/2012 3/15/2012 2,698 2,423 11% -

Xinjiang Goldwind 2208 HK CNY Reduce 3.50 FY11 876 -62% 0.13 3/23/2012 3/27/2012 876 803 9% -

China wind average 1,435 -20% 0.11

Shanghai Electric 2727 HK CNY Buy 4.70 FY11 3,269 17% 0.08 3/23/2012 3/26/2012 3,269 3,174 3% In line

Dongfang Electric 1072 HK CNY Buy 30.5 FY11 3,174 23% 0.16 3/29/2012 3/30/2012 3,174 3,127 2% -

Harbin Power 1133 HK CNY Neutral 9.40 FY11 1,015 -1% 0.14 3/16/2012 3/20/2012 1,015 1,088 -7% -

China equipment average 2,486 13% 0.13Korea Electric Power 015760 KS KRW Buy 35,000

Korea Gas 036460 KS KRW Buy 52,000

Korea utilities average

E-Ton Solar Tech 3452 TT TWD Reduce 37.0 4Q11 91 NM 0.00 NA 4/20/2012 433 433 0% -

Motech Industries 6244 TT TWD Reduce 39.0 4Q11 -154 NM 0.00 12 to 15 March 2012 3/15/2012 -329 -875 -62% -

Taiwan solar average -32 NM 0.00

Indonesia

Perusahaan Gas PGAS IJ IDR Buy 3,900 FY11 5918* -14% 168 March 3/30/2012 5918* 6410* -8% -

Glow GLOW TB THB Neutral 62.0

Electricity Generating EGCO TB THB Buy 110

Ratchaburi Generating RATCH TB THB Buy 41.0

Thailand power average

Tenaga Nasional TNB MK MYR Neutral 6.60

YTLP YTLP MK MYR Neutral 2.28

Malaysia utilities average

Philippines

Energy Development EDC PM PHP Buy 7.20 FY11 6,633 -8% 0.11 Early March 3/22/2012 6,633 4,609 44% -

Adani Power ADANI IN INR Neutral 115

JSW Energy JSW IN INR Reduce 65.0

Lanco Infratech LANCI In INR Buy 30.0

NTPC NTPC IN INR Buy 206

PGCIL PWGR IN INR Buy 120

Reliance Power RPWR IN INR Reduce 136

India utilities average

India coal

Coal India COAL IN INR Buy 398

Australia

AGK AU equity AGK AU AUD Buy 17.5 1H12 235 4% 0.30 2/24/2012 2/24/2012 482 487 -1% +

Reported

March Y/E

Reported

Reported

Reported

March Y/E

March Y/E

Est. Net Profit for the

periodAnnouncement date FY11 Net Profit

Reported

March Y/E

Reported

Reported

March Y/E

March Y/E

March Y/E

Reported

Reported

March Y/E

March Y/E


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Hong Kong utilities: Strong 2011 driven by overseasacquisitions, upcoming risk on HK SOC earnings

HK utilities outperformed the market significantly in 1H11 (except HKCG), due to the

flight to defensive names as a favourable regulatory regime (guaranteed 10% ROA)

allows the names to sail against macro headwinds such as rising interest rates, fuel

costs and inflation. The weakening USD also supports overseas earnings. However, they

have started to underperform since Dec 2011 when the debate on electricity tariff hikes

in HK became intensified and investors started to become aware of the risk of their HK

earnings (a potential lower capex for 2014-18 and changes on scheme of control (SOC)return post 2018 both of them will be discussed from 2013, and we expect increasing

public pressure from this year). We expect the utilities to post strong results for 2011

driven by overseas acquisitions, especially by our favoured companies PAH and CKI.

However, we expect momentum to slow and they may underperform the market from

2012 as CLP, PAH and CKI have already attained our price targets, valuations becoming

stretched and increasing risks on their HK earnings which may induce a de-rating given

HK still accounts for more than 40% of their total earnings. As well, the market is

gradually taking on risk on expectations of a recovery in 2H11, which does not provide a

positive backdrop, in our view. This is unless they can maintain their acquisition pace,

however, after a busy 2011, we believe they should take a rest this year to digest and

repair their balance sheets. Meanwhile, we will be watching HKCG, as its upstream new

energy business is expected to report a first-time FY profit in 2011 results.

China IPPs: A turnaround story in 2012F

China IPPs experienced a significant earnings decline in 2011, by -0.6 to -49.6%, per our

estimates, due to the rising fuel cost (spot coal price up 10.2% and blended contract coal

price up 3% in 2011) and interest rate hikes (up 75bps in 2011), which was partially

offset by a 9.7% tariff hike announced in 2011 (with 6.5% granted effective on 1 Dec

2011). In 2012F, we expect IPPs earnings to be more than doubled, based on: 1) The

full year impact of the 9.7% tariff hike announced in 2011; together with another potential

tariff hike of 5% likely to occur in July 2012 due to lowering CPI, current low black spread

and potential utilities price reform, in our view; 2) Unit fuel cost to change slightly (-1.4%

to +4.9%) due to a 4% decline in spot coal price and a 6.2% increase in blended contract

price in 2012F; 3) An interest rate decline of 25bps in 1Q12F; and 4) A stable utilizationrate and 8.1% growth in installed capacity for 2012F. Overall, we expect tariff hikes to be

a multi-year theme due to low inflation and Beijings target to implement tariff reform by

2014-15F. With power tariff reform and fuel cost relief, we prefer Huaneng and CPID as

our top Buys, given Huanengs traditional coal-fired IPP nature and CPIDs bigger

leverage to tariff hikes and recovery in hydropower generation in 2012F.

China coal: Strong earnings growth became a history

Given average spot coal price rose 10% in 2011, despite key contract price was frozen,

coal companies are expected to report robust earnings growth of 20-39% for 2011, with

highest forecast EPS growth from China Coal (+39%), followed by Yanzhou (+26%) and

Shenhua (+20%). In 2012, we expect average Chinese spot coal price to fall by 4% and

key contract price to rise by 5%. This should put the coal companies ASP to remain flat

for 2012F. This, together with a likely less robust production and volume sales growth for

2012 due to slowing demand growth for coal as a result of economic slowdown and

increasing power generation from non-coal fired alternatives, as well as a 5-6% rise in

production costs. We expect sector earnings to rise by a slower 13% for 2012F (vs 28%

for 2011F). Thus, we have turned Neutral on the sector and would only prefer China

Coal, given less exposure on spot and high visibility on production growth. We expect

Shenhua to be range-bound between HK$32-38, while we expect Yanzhou to hit

HK$17.10 again this year.


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Asia solar: LDK US (Reduce); 6244 TT (Reduce)

Solar stock prices have outperformed the market YTD-12F on the back of rush orders

from Germany and the US in 4Q11F as developers looked to lock in projects before

subsidy changes from Jan-12. However, the sharp decline in ASPs through 4Q11 will

see most solar companies continuing to report losses despite demand growth. While

channel inventories declined in 4Q11, high utilizations currently could lead to further

inventory escalation in 1H12. Furthermore, macroeconomic concerns remain, coupled

with the expected subsidy cuts in Germany from April-12F and the US ITC investigation

overhang.Top Reduces LDK Solar (LDK US); and Motech (6244 TT)

LDK Solar: We remain concerned about LDKs liquidity issues with its net debt to equity

at 227.1% in 3Q11. We also remain concerned on cost structure improvements coming

in slower than expected, potential sharp market share loss in the wafer business to

GCL and weak end-market demand likely hurting module sales. As such, we see rapid

deterioration in the company's financial health with LDK potentially coming under

pressure.

Motech: Motech has a healthy balance sheet and strong backing from TSMC (which

has a 20% stake in the company). That said, we do not believe Motech has any

meaningful advantages in terms of costs or business model vs. its China-based peers.

We see losses continuing through FY12~13F and view Motech as overpriced

compared to its peer group.

China water: Prefer quality play in light of slower growth thanbefore

In our view, key investment themes in 2012F for the water and environmental sector are:

(1) As wastewater treatment (WWT) build-out during 11-15F (42mn tons/day) is slower

than 06-10 (68mn tons/day), focus on WWT plays with competitive edge on: a) rural

development; b) upgrade projects; c) being an industry leader in the consolidating space;

(2) Avoid tap water as privatisation is slowing as profitability of state-own water utilities

improves due to continuous tariff hike; (3) The number of waste-to-energy (WTE) plants

is expected to more than double by 2015F; (4) Non-traditional water source (Recycle-

water and desalination) are expected to experience stronger-than-industry capacity

growth and; (5) Focus on quality plays with a strong track record in delivering capacity

growth.

In light of the above, Beijing Enterprises Water (371 HK, Buy) remains our top pick due

to its (1) exposure to the potential desalination development in Caofeidian; (2) its strong

project pipeline secures earnings growth ahead; (3) being a clear industry leader in

WWT which has already started getting projects through acquisition during 11 and (4)

good track record in capacity growth. We also like China Everbright (257 HK, Buy) and

Sound Global (967 HK, Buy), largely due to their respective exposure to WTE and rural

WWT. We expect strong (y-y growth) FY11 results on our preferred plays, Beijing

Enterprises Water and Sound Global, largely due to capacity expansion and increasing

projects execution. For China Everbright, FY11 results were reported earlier in February,

which came in at HKD801mn, up 30% y-y.

China gas: Strong volume growth story continues

Solid 2011 results are expected, given strong gas volume growth across the sector,

benefiting from strong gas demand with rising gas supply in China. In 2012, we look for

the strong volume growth story to continue, with a possibility for gas cost pass-through to

resume, given an expected downward trend of CPI in 1H12.

Heading to 2012, our top sector pick remains CR Gas and Beijing Enterprises. For CR

Gas, with the visible growth opportunities from the parents asset injection and potential

new projects from local governments (such as Shanghai, Guangzhou, Dalian, Hefei,

Lanzhou and Changchun), we see the stock to continue its outperformance vs market in

2012. For Beijing Enterprises, we believe it is a recovery story in the sector, with


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continuous improvement in fundamentals, coming from: i) strong gas consumption

growth in Beijing per the Beijings 12th Five Year Plan; ii) improvement in transmission

margin with volume picking up; and iii) potential resumption of gas cost pass through

amid the CPI pressure relieves.

China wind farm: 916 HK (Buy)

Our China Longyuan FY11 earnings forecast stands at RMB 2,698mn (~11% above

consensus). Per operational data from the company, while FY11 coal power generation

volume is largely in line, wind power depicts softer y-y utilisation, due to weaker-than-trend 4Q wind resources and continued grid curtailment. Thus, we believe there may be

downside risk to our forecasts, factoring in sub 2000hr utilisation for FY11 (as the data

suggests), we estimate our core EPS could be around 10pct heavy.

Nevertheless, off-trend wind resources in FY11 are by definition transitory, and factors

(CDM, curtailment and liquidity) which saw the stock de-rate last year (-16.0%) are

improving. We see value in Longyuan, which trades at 1.4x P/B and not far off its wind

power capacity replacement cost. Reiterate Buy.

China power equipment: Favours 3G nuclear exposure / avoidwind equipment plays

Our expected 1H12 nuclear project approval resumption announcement by the State

Council would act as key catalyst for companies with nuclear exposure, in our view. We

continue to like Shanghai Electric (2727 HK, Buy), due to its: (1) 3G nuclear equipment

exposure; (2) integrated value chain within nuclear island equipment fabrication; (3) less

exposure to wind equipment in comparison with its peer, Dongfang Electric (1072 HK,

Buy). Easing material cost (benchmark HRC price down 10% over 2H11) will not

materially improve 2H11s but may improve FY12s operating environment, in our view,

as power equipment has a long product-cycle nature. We expect in-line results from

SEG, largely due to its on-track production execution. We see slight downside to our

Dongfang Electrics and Harbin Electric (1133 HK, Neutral)s FY11F earnings forecast

due to their respective exposure to weak wind equipment sales and one-off investment

loss.

For pure wind equipment plays, we expect China High Speed (658 HK, Neutral) and

Goldwind (2208 HK, Reduce), to report weak FY11F results due to: (1) continued fall in

wind equipment ASP; (2) downward gross margin trend and (3) poor sales volume. Into

2012F, we do not expect a drastic improvement in light of our expected sluggish

domestic wind equipment demand. Our reduce call, Goldwind, also has overhang due to

rare earth material cost in 2H12F.

ASEAN utilities: PGAS IJ (Buy), EDC PM (Buy)

Perusahaan Gas NegaraOur FY11F profits forecast of IDR5,918bn is c.8% below consensus on account of a

more pensive stance on the groups piped gas supply outlook (FY11F:785mmscfddistribution volume) and a strengthening (5%) IDR relative to the US$. Although we

believe there may be downside risk to consensus earnings expectations, we note that

the post Aug 2011 sell-down in PGNs stock after BP Migas announcement that it

intended to broker more robust upstream gas prices has seen the stock detach from its

near-term earnings outlook. We believe PGN has both the cost-plus pricing mandate

and, importantly, pricing power to defend its distribution margins should this materialise.

We concede that the stock has rebounded considerably (+64%) from its local minimum

of IDR2,200/share in Sept 2011, and in that sense our high conviction reflation theme

may no longer have legs; however, we believe the markets post-3Q11 concentration

with potential earnings erosion has completely diverted focus away from what we

regard as perhaps the most attractive secular, fundamental growth story in the ASEAN

power and utilities space. Wedged monopolistically between easing piped gas supply

dynamics and what we see as outstaying natural gas demand fundamentals, and with


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~50% excess distribution capacity, we see PGN as the ideal conduit through which to

gain exposure to what we believe will be a marked lift in Indonesias domestic natural

gas penetration over the medium term. To the extent that the company can insulate

margin, more market-aligned upstream piped gas prices and the groups pending

(2HFY12F) migration to an LNG supply paradigm bode well for unlocking the volume-

driven growth potential inherent in the business. We reiterate our Buy call.

Energy Development CorporationEnergy Development Corp (EDC) is in for a challenging FY11 (and for that matter 1-

2QFY12) relative to published consensus earnings expectations, in our view, given therecent news of Bacmans (~10% of consolidated capacity) rehabilitation delays from

previous guidance of 4Q11 to managements most recent 3QFY12F goalpost. Aside

from the obvious foregone earnings, to the extent that EDC has contracted out Bacmans

capacity, the delay has left EDC short spot market tariffs over 1HFY12, and even

though management argues that there is sufficient slack in the portfolio to meet the vast

majority of the companys contract obligations over this period, such a strategy may lay

claim to lucrative ancillary market income streams. That being said, we believe EDC

remains one of the most compelling growth stories in the ASEAN power space. Despite

Bacmans delays which should arguably be viewed as a deferral of earnings tariff

reversions at the Palinpinon-Tongonan will, in our view, support a healthy FY12F

earnings growth rate, while the (eventual) recommissioning of Bacman, together with a

healthy (c.25%) domestic greenfield development pipeline over the coming 4-6 years,bode well for the business earnings growth trajectory over the medium term. We would

advise investors to look at any weakness post the companys 4QFY11-1QFY12 as an

opportunity to accumulate.

Australian IPPs: We forecast AGK will report 1H12F NPAT ofA$235mn

In October 2011, at the AGM, AGK guided the market to a FY12 underlying profit NPAT

of A$470-500mn. Nomura forecasts FY12F reported NPAT of A$482mn. We see the

potential for a weaker first-half, given the reduction in wind farm development fees, lower

contribution from retail given the mild winter that was experienced on the Eastern

seaboard of Australia in the 1H and a lower contribution from merchant energy given low

wholesale electricity price through the period.

Key points to watch for in the 1H results will be:

Evidence of retail electricity customer growth in New South Wales (NSW) (Nomura

forecasting AGL will have grown electricity retail customers to over 500,000 at 1H12F).

The company is targeting 800900,000 electricity customers in NSW by FY14F.

Evidence of a reduction in churn in AGLs other gas and electricity retail and small and

medium enterprise (SME) markets.

News on when and if AGL will receive NSW Government approval to proceed with the

500-750 MW Dalton gas-fired peaking generator and the Tomago gas storage facility.

An update on recent press speculation (confirmed by the company) that they are

considering options for their future investment in Loy Yang A power station. Update on coal seam methane and gas reserves and development options.

Updates on impact on generation assets given the introduction of a carbon tax from 1

Jul 2012.


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Appendix A-1

Analyst Certification

We, Ivan Lee, Daniel Raats, Anirudh Gangahar, David Fraser, Keith Nam, Joseph Lam, Alan Hon and Nitin Kumar, hereby

certify (1) that the views expressed in this Research report accurately reflect our personal views about any or all of the subject

securities or issuers referred to in this Research report, (2) no part of our compensation was, is or will be directly or indirectly

related to the specific recommendations or views expressed in this Research report and (3) no part of our compensation is tied

to any specific investment banking transactions performed by Nomura Securities International, Inc., Nomura International plc or

any other Nomura Group company.

Issuer Specific Regulatory Disclosures

The term "Nomura Group Company" used herein refers to Nomura Holdings, Inc. or any affiliate or subsidiary of Nomura Holdings, Inc. Nomura

Group Companies involved in the production of Research are detailed in the disclaimer below.

Issuer name Ticker Price Price date Stock rating Sector rating Disclosures

Motech Industries 6244 TT TWD 60.5 24-Feb-2012 Reduce Not rated

China Longyuan Power 916 HK HKD 6.42 24-Feb-2012 Buy Not rated

AGL Energy AGK AU AUD 13.67 24-Feb-2012 Buy Not ratedEnergy Development Corp EDC PM PHP 5.30 24-Feb-2012 Buy Not rated

LDK Solar LDK US USD 5.97 23-Feb-2012 Reduce Not rated A9

Perusahaan Gas Negara PGAS IJ IDR 3,600 24-Feb-2012 Buy Not rated

A9 Nomura Securities International Inc. makes a market in securities of the issuer.

Previous Rating

Issuer name Previous Rating Date of change

Motech Industries Neutral 25-Oct-2011

China Longyuan Power Neutral 12-Dec-2011

AGL Energy Not Rated 10-Jan-2011

Energy Development Corp Neutral 22-Aug-2011LDK Solar Neutral 25-Oct-2011

Perusahaan Gas Negara Not Rated 15-May-2009

AGL Energy (AGK AU) AUD 13.67 (24-Feb-2012)Rating and target price chart (three year history)

Buy (Sector rating: Not rated)

Date Rating Target price Closing price

07-Feb-11 17.50 15.01

10-Jan-11 Buy 15.22

10-Jan-11 17.85 15.22

For explanation of ratings refer to the stock rating keys located after chart(s)


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Valuation Methodology Our A$17.50 target price is based on discounted cashflow valuation assuming a risk free rate basedon the 10-year Australian bond rate of 5.5%. Key assumptions used in the discounted cash flow valuation include a WACC of9.3% based on a 0.70 asset beta and 20% target debt to enterprise value, and a real long term growth rate of 1.0%, discountedback to FY12.

Risks that may impede the achievement of the target price Risks that may impact on our target price include churn-out ofretail customers to competitors, electricity supply and price, gas supply and price, deliverability of owned or controlled coal seammethane assets, water volumes in hydro assets, coal seam methane development environmental concerns, any introducedemissions trading scheme or carbon tax and lastly AGL may be seen as a potential source of funding for a TRUenergy IPO.

China Longyuan Power (916 HK) HKD 6.42 (24-Feb-2012)Rating and target price chart (three year history)



12-Dec-11 Buy 5.65

12-Dec-11 7.40 5.65

18-Mar-11 Neutral 7.90

09-Sep-10 7.60 8.16

01-Apr-10 8.50 9.14

29-Jan-10 Reduce 9.60

29-Jan-10 9.50 9.60


Valuation Methodology Our PT of HKD7.40 is based on three-stage DCF valuation, assuming a WACC of 7.5% and 2.5%terminal growth rate

Risks that may impede the achievement of the target price Key downside risks to our view are weaker-than expectedmedium term utilisation on account of grid connectivity and curtailment bottlenecks

Energy Development Corp (EDC PM) PHP 5.30 (24-Feb-2012)Rating and target price chart (three year history)



22-Aug-11 Buy 5.80

22-Aug-11 7.20 5.80

12-Apr-11 Neutral 6.71

12-Apr-11 7.30 6.71

17-May-10 6.40 5.10

29-Apr-10 6.20 5.40

05-Feb-10 Buy 4.65

05-Feb-10 5.90 4.65


Valuation Methodology Our PHP7.2 DCF-based target price assumes a WACC of 9.5% and a terminal growth rate of 2%. Thecashflows are discounted back to FY11F.


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Risks that may impede the achievement of the target price We view 1) faster-than-anticipated progress in securing foreignnew-build projects and 2) additional asset acquisitions (notably Unified Leytes PPA) as the key upside risks to our call.Significant discontinuities in the Philippines regulatory environment while in our view a remote possibility would be the keydownside risk.

LDK Solar (LDK US) USD 5.97 (23-Feb-2012)Rating and target price chart (three year history)

Reduce (Sector rating: Not rated)


25-Oct-11 Reduce 3.16

25-Oct-11 2.60 3.16

05-Aug-11 7.00 5.60

07-Jun-11 8.00 7.10

15-Nov-10 14.00 12.31

27-Nov-09 8.00 7.61

12-Mar-09 4.50 4.04


Valuation Methodology We use the FY12F P/BV of global peers to value the company and apply a 25% discount to this toreflect macro concerns and LDKs stretched balance sheet for a target FY12F P/BV multiple of 0.3x. Our FY12F BVPS ofUSD8.84 gives us a target price of USD2.60.

Risks that may impede the achievement of the target price Upside risks to our target price include: 1) Stability in macro-conditions with improvements in available financing which will also help LDK to successfully execute on its IPO listing; 2)Ground-breaking cost reductions helping LDK to push its profitability curve ahead of peers

Motech Industries (6244 TT) TWD 60.5 (24-Feb-2012)Rating and target price chart (three year history)

Reduce (Sector rating: Not rated)


25-Oct-11 Reduce 60.30

25-Oct-11 39.00 60.30

05-Aug-11 87.00 74.80

28-Apr-11 111.00 100.87

15-Nov-10 Neutral 104.35

15-Nov-10 119.00 104.35

27-Aug-10 97.00 111.30

30-Apr-10 97.50 97.72

03-Sep-09 Reduce 78.00

03-Sep-09 58.70 78.00

23-Apr-09 94.90 71.69

01-Apr-09 94.89 69.60


Valuation Methodology We use the FY12F P/BV of Greater China peers to value the company and give Motech a 50%premium due to its strong balance sheet and stake-holding by TSMC. Our target price of TWD39 is based on peer averageFY12F P/BV of 0.8x and book value of TWD47.77

Risks that may impede the achievement of the target price Upside risks to our target price include: 1) Stability in macro-

conditions with improvements in available financing; 2) Faster capacity closures of higher cost peers helping improve supply-


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demand balance; 3) New project financing models finding success; and 4) Ground-breaking cost reductions helping Motech topush its profitability curve ahead of peers.

Perusahaan Gas Negara (PGAS IJ) IDR 3,600 (24-Feb-2012)Rating and target price chart (three year history)



12-Sep-11 3,900.00 2,800.00

22-Apr-11 4,800.00 3,925.00

08-Nov-10 5,100.00 4,425.00

05-Nov-09 4,300.00 3,650.00

01-Sep-09 4,000.00 3,425.0010-Jun-09 3,900.00 3,125.00

15-May-09 Buy 2,450.00

15-May-09 3,300.00 2,450.00


Valuation Methodology Our IDR 3,900 DCF-based target price assumes a WACC of 9.5% and a terminal growth rate of 3%.The cash flows are discounted back to FY12F.

Risks that may impede the achievement of the target price Key downside risks to our view include a continuedstrengthening of the IDR relative to the USD, weaker-than-anticipated realised gas distribution flows, an inability to protectdistribution margins from higher gas costs, and government interference in gas supply contracts.


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Important DisclosuresOnline availability of research and conflict-of-interest disclosuresNomura research is available on www.nomuranow.com, Bloomberg, Capital IQ, Factset, MarkitHub, Reuters and ThomsonOne.Important disclosures may be read at http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx or requestedfrom Nomura Securities International, Inc., on 1-877-865-5752. If you have any difficulties with the website, please [email protected] for help.The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues, aportion of which is generated by Investment Banking activities. 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Marketing Analysts may also contribute toresearch reports in which their names appear and publish research on their sector.Distribution of ratings (US)The distribution of all ratings published by Nomura US Equity Research is as follows: 35% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 11% of companies with thisrating are investment banking clients of the Nomura Group*.59% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 2% of companies with thisrating are investment banking clients of the Nomura Group*.6% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 0% of companies with thisrating are investment banking clients of the Nomura Group*.As at 31 December 2011. *The Nomura Group as defined in the Disclaimer section at the end of this report.Distribution of ratings (Global)The distribution of all ratings published by Nomura Global Equity Research is as follows: 47% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 40% of companies with thisrating are investment banking clients of the Nomura Group*.43% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 45% of companies withthis rating are investment banking clients of the Nomura Group*.10% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 21% of companies withthis rating are investment banking clients of the Nomura Group*.As at 31 December 2011. *The Nomura Group as defined in the Disclaimer section at the end of this report.Explanation of Nomura's equity research rating system in Europe, Middle East and Africa, US and Latin AmericaThe rating system is a relative system indicating expected performance against a specific benchmark identified for each individual stock.Analysts may also indicate absolute upside to target price defined as (fair value - current price)/current price, subject to limited managementdiscretion. 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A rating of 'Suspended'indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certaincircumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the subject company.
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Securities and/or companies that are labelled as 'Not rated' or shown as 'No rating' are not in regular research coverage of the Nomura entityidentified in the top banner. Investors should not expect continuing or additional information from Nomura relating to such securities and/orcompanies.SECTORSA 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positiveabsolute recommendation. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocksunder coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted averagerecommendation of the stocks under coverage is) a negative absolute recommendation.Target PriceA Target Price, if discussed, reflect in part the analyst's estimates for the company's earnings. The achievement of any target price may beimpeded by general market and macroeconomic trends, and by other risks related to the company or the market, and may not occur if thecompany's earnings differ from estimates.


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