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Yangtze Power shares go on roller coaster ride at bourses

By Zhou Yan (China Daily)
Updated: 2009-05-27 08:08

Power transmission facilities at the Three Gorges hydropower plant. [China Daily]

China Yangtze Power Co (CYPC) shares have been on a roller coaster last week after the company has acquired power generating facilities worth 107.5-billion-yuan from its parent.

Shares of CYPC, the country's largest listed hydropower generation firm, fell 7.8 percent last week, regardless of the more than 4 percent surge on May 18 when trading in the company's shares resumed after a year-long suspension for asset restructuring. CYPC's stock closed at 14.35 yuan before trading was halted on May 8, 2008.

The company's shares edged down 0.89 percent to close at 13.32 yuan yesterday. The turnover in CYPC shares was relatively low at 75.3 million yuan, if compared with the overwhelming 7.95 billion yuan last Monday.

"It's a normal correction given the lengthy suspension of the company's shares," said Peng Quangang, analyst, China Merchants Securities. "Many investors are eager to realize gains after holding the shares for long."

A report from online financial information provider Panorama Network Co showed that during the first two trading days last week, the stock saw net cash outflows of nearly 1.35 billion yuan.

Peng still believe that the downside risk on CYPC is limited due to its dominant position in the industry. He expects the company's share price to increase to at least 16 yuan within this year.

Cui Yuqin, analyst, Everbright Securities, said as the major index has slid 26 percent during CYPC's suspension period, its shares need slight corrections.

CYPC, which operates the world's largest hydroelectric dam Three Gorges project, launched an acquisition plan to acquire assets worth 107.5 billon from its parent by purchasing 18 of the 26 Three Gorges generating units and related facilities that it doesn't already own, the company said in a statement last Friday to Shanghai Stock Exchange.

The power generating firm will assume debt of 50 billion yuan, issue 1.55 billion shares in a private placement for 12.89 yuan each to raise 20 billion yuan, and pay 37.5 billon yuan in cash, to its parent company China Three Gorges Project Corporation to acquire the assets, the statement said.

Most brokers, including China Merchants Securities and Shenyin & Wanguo Securities, have upgraded their ratings on the firm's stock to "recommend" or "purchase" following the massive acquisition scheme, as the power generation and installed generating capacity will see distinct growth.

The power generation of the 26 generating unites will reach 84.7 billion kWh, which will boost the company's total power generating capacity by 90 percent from the present 44.2 billion kWh, said Zhang Lin, analyst, Greatwall Securities.

The acquisition price looks reasonable and the total reconstruction plan was "better than expected," said Zhang, adding that the premium for the 107.5 billion yuan was estimated at 28 times, while the scheme will lift the earnings by over 30 percent.

In addition, CYPC's installed generating capacity is estimated to be 2.5 times higher than its current level after the acquisition, said Peng.

He said the acquisition would boost the company's earnings per share to 0.59 yuan and 0.72 yuan in 2009 and 2010 respectively, when compared with 0.41 yuan in 2008.

A research report from GF Securities shows that after the take-over, the net profit of the company will go up to 6.4 billion yuan and 7.9 billion yuan in 2009 and 2010 respectively.

The company's net profit fell 26.8 percent year-on-year to 3.93 billion yuan in 2008.

Related readings:  Yangtze Power Q3 net profit down 14.69%  Yangtze Delta urged to restructure industry  Sinotrans and Yangtze agree on logistics merger  Yangtze Power 2007 profit up 48.61%

However, industry insiders warned that the utility company's earnings would be negatively affected by the rising liabilities.

GF Securities' analyst Xie Jun said that the company's debt ratio would rise from 35 percent to 60 percent following the acquisition.

According to the utility company's first-quarter financial report, total assets reached 57.7 billion, with liabilities of 19.4 billion.

The acquisition, which is partly in the form of taking on debts and payments in cash, will add over 80 billion yuan more debt to the company, when extending its total assets to 165.2 billion yuan.

In addition, apart from the earnings drivers from the reshuffling, CYPC would have no other profit engines in the next two to three years, Cui said.

Zou Jianjun, an analyst from Fortune Securities, cautioned that the stagnant macro economy would probably lead to more accounts receivables, which are likely to delay CYCP's debt repayment progress.