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Daiwa cuts China Longyuan (00916) target to $5.4
12 Jul 2019
(Infocast News) Daiwa Capital Markets has downgraded China Longyuan Power (00916) from Outperform to Hold and cut price target on the stock from HK$5.75 to HK$5.40. The brokerage expects the company's balance sheet to remain stretched, leading to slower EPS growth on rising finance costs over 2019-2021.

After correcting by 16% between mid-March and mid-June, China Longyuan Power's share price has rebounded by 3%. However, Daiwa believes subsidy receivables are still a concern as it expects China Longyuan Power's capital expenditure to rise from RMB7.8 billion in 2018 to RMB12.5-13.5 billion to add 1.2-1.6 GW of new wind power capacity pa in 2019-2021 due to rush installations before the expiry of subsidy tariffs. Daiwa expects China Longyuan Power's free cash flow falling rapidly in 2019-2021 given the need for significant working capital amid the upcoming GC policy in 2020.

Daiwa prefers wind power equipment maker Xinjiang Goldwind Science & Technology (02208) in 2019-2021.

(WL)
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