Huaneng Power eyes 10 projects from parent group

They're worth CNY9.3b in all.

Huaneng Power has announced to acquire 10 projects from its parent, the Huaneng Group, which are noted to be worth CNY9.3b in total.

According to a research note from Maybank Kim Eng, these projects include Hainan Power, Wuhan Power, Suzhou Power, Dalongtan Hydropower, Hualiangting Hydropower, Chaohu Power, Ruijin Power, Anyuan Power, Jingmen Thermal and Yingcheng Thermal.

The report said that if all the conditions can be fulfilled, the asset injections should be completed by 1 Jan 2015.

After the asset injections, it is expected that the total attributable capacity could increase by around 9% by end 2014.

Here’s more from Maybank Kim Eng:

As the total consideration will be CNY9.3b, we estimate the net gearing in end FY14 will increase by around 8ppts so that the net gearing will increase to ~192%.

We have calculated the transaction FY13 PER to be 5.4x, lower than the FY13 PER of Huaneng at 9x. So we think this transaction will be favourable to Huaneng.

In fact, we expect the overall earnings from the injected assets will increase in 2014 due to lower coal prices in 2014.

We believe the market has been anticipating the market injections and we expect it will be a positive catalyst to Huaneng.

After factoring the asset injections, we upgrade Huaneng from HOLD to BUY and raising DCF-based TP from HKD8.50 to HKD11.