china / hong kong company guide beijing enterprises clean ... · swot analysis 3 valuation 4 top...

ed- JS / sa- DL

BUY (Initiating Coverage)

Last Traded Price ( 29 Jun 2017):HK$0.185 (HSI : 25,965) Price Target 12-mth: HK$0.24 (30% upside) Analyst Patricia YEUNG +852 2863 8908 [email protected] Tony WU CFA +852 2971 1708 [email protected] Price Relative

Forecasts and Valuation FY Dec (HK$ m) 2016A 2017F 2018F 2019FTurnover 2,890 5,599 7,574 9,016 EBITDA 802 1,875 3,000 4,155 Pre-tax Profit 666 1,159 1,540 1,839 Net Profit 505 951 1,314 1,576 Net Pft (Pre Ex) (core profit)

428 951 1,314 1,576

EPS (HK$) 0.01 0.02 0.02 0.03 Core EPS (HK$) 0.01 0.02 0.02 0.03 EPS Gth (%) 411.3 25.0 38.2 19.9 Core EPS Gth (%) 332.8 47.7 38.2 19.9 Diluted EPS (HK$) 0.01 0.02 0.02 0.03 DPS (HK$) 0.00 0.00 0.00 0.00 BV Per Share (HK$) 0.12 0.11 0.13 0.16 PE (X) 13.2 10.6 7.6 6.4 Core PE (X) 15.6 10.6 7.6 6.4 P/Cash Flow (X) 23.8 nm nm 14.8 P/Free CF (X) nm nm nm nm EV/EBITDA (X) 15.9 13.8 12.7 11.9 Net Div Yield (%) 0.0 0.0 0.0 0.0 P/Book Value (X) 1.5 1.7 1.4 1.2 Net Debt/Equity (X) 1.3 2.7 3.9 4.4 ROAE (%) 15.4 18.6 20.4 20.0 Earnings Rev (%): New New New

ICB Industry: Oil & Gas ICB Sector: Alternative Energy

Principal Business: Design, construct and operate of solar power and wind power plants Source of all data on this page: Company, DBSV, Thomson Reuters, HKEX

Rising star in renewable energy Top-tier platform for renewable energy development

backed by Beijing Enterprises Group Solid project execution capability; one of the top five

developers for Top Runner Programme in 2016 Diving into wind power for additional growth Initiating coverage with BUY rating with TP set at HK$0.24 Solid renewable energy platform. Beijing Enterprises Clean Energy (BECE) has great potential to become one of the leading solar power developers in China by leveraging on the strong execution ability of BEWG, funding ability of CITIC Securities, and technological background of TUS Holding. In fact, it was one of the top five developers under the Top Runner Programme in terms of number of projects secured in 2016.Trading at 7.7x FY18PE, BECE is an attractive play riding on Beijing Enterprises Group’s growth story. Where we differ. We are confident in BECE’s execution ability in obtaining new renewable energy projects. We have assumed solar and wind power’s installed capacity to increase 381% and 1875% from FY16 to FY19F. Potential catalyst. We believe solid execution in expanding installed capacity will be able to drive the share price. We expect total installed capacity for solar power to reach 2.1GW in FY17, representing robust 127% y-o-y growth. With proven track record and a rich project pipeline of 1.1GW, we are confident in BECE’s execution ability. Moreover, we believe there is strong growth potential from wind power. It has set up an experienced wind power development team in 1Q17 and we believe wind power will be a key focus. Valuation:

We initiate coverage with a BUY rating, and TP of HK$0.24, pegged to 11x 12-month rolling PE. We estimate BECE’s earnings CAGR to reach 46% between FY16 to FY19. We reckon the valuation is justified given the solid SOE background and stronger than peers earnings growth. The FY17 PEG of 0.17 is also lower than the industry average of >0.3 Key Risks to Our View:

Lackluster project growth, subsidy payment delay and adverse government policy.

At A Glance Issued Capital (m shrs) 54,305 Mkt. Cap (HK$m/US$m) 10,046 / 1,287

Major Shareholders Beijing Enterprises Group Company Limited (%) 31.9 CITIC Securities Company Limited (%) 27.3 Tsinghua University (%) 8.1

Free Float (%) 32.7 3m Avg. Daily Val. (US$m) 0.4

DBS Group Research . Equity 30 Jun 2017

China / Hong Kong Company Guide

Beijing Enterprises Clean Energy

Version 1 | Bloomberg: 1250 HK Equity | Reuters: 1250.HK

Refer to important disclosures at the end of this report

Company Guide


Table of Contents

SWOT Analysis 3

Valuation 4

Top tier renewable energy platform 7

Solar power will be the bright spot 10

Comprehensive renewable energy play in the long run 11

Financial analysis 12

Key Risks 13

Appendix 14

Industry overview 14

Key Management Team 16

Company Guide


SWOT Analysis

Strengths Weaknesses

Strong shareholder background, backed by large SOEs and Tsinghua University

Strong project acquisition ability

Good in-house EPC team

Experienced management team with proven track record

High gearing ratio due to intense capex requirement

Short operating history in the renewable energy industry

Opportunities Threats

Diversify into wind power, hydropower, geothermal energy, micro-grid technologies, and energy storage

Supportive government policies

Accelerated growth in distributive solar power

Slow expansion speed

Faster than expected drop in feed-in-tariff

Delay in subsidy payment

Source: DBS Vickers

Company Guide


Valuation

We initiate coverage on Beijing Enterprises Clean Energy (BECE) with a BUY rating. The share price has pulled back by more than 85% from its peak in 2015, and is currently trading at 7.7x FY18F PE, which is at a 40% premium to HK-listed peers. Our TP is set at HK$0.24, pegged to 11x 12-month rolling PE. Our target valuation is justified given the solid SOE background and robust earnings growth of 48% CAGR between FY16 to FY19. The FY17 PEG of 0.17 is also lower than the industry average of >0.3.

BECE is expected to expand at a faster pace than peers in solar power development by leveraging on its SOE background and strong financing ability. It connected 946MW of projects in FY16 and we expect an additional 1200MW will be connected in FY17. Xinyi Solar (968 HK) and United PV (686 HK) on the other hand, only connected 854MW and 315MW respectively in FY16. Even though United PV is backed by China Merchants Group, its high financing costs and M&A driven model is expected to be a drag on its earnings growth. BECE’s competitive financing ability and increasing portion of lower cost self-developed projects will be more favorable in the long run.

In addition, BEWG was trading at above 30x PE in 2009 and its share price has more than doubled over the past few years as it delivered strong growth under the leadership of Mr. Hu Xiaoyong. BEWG’s water capacity increased more than six fold and grew at a CAGR of 34% between 2009 and 2016. We are positive that BEWG’s strong execution ability can be replicated in BECE’s renewable energy business segment, justifying a valuation premium against its peers.

PE vs growth

BE Clean Energy

GCL New Energy

Xinyi Solar0

20

40

60

80

100

120

140

0 5 10 15

EPS CAGR 16-18F (%)

FY18F PE (x)

Source: Company, DBS Vickers

PE band chart

PB band chart

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0

Jul-1

3

Nov

-13

Mar

-14

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-15

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5

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-15

Mar

-16

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6

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-16

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-17

Jul-1

7

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Share Price (HK$)

20x

15x10x6x1x

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-17

Share Price (HK$)

16.5x

12.6x

8.6x

4.7x

0.7x

Source: Thomson Reuters, DBS Vickers Source: Thomson Reuters, DBS Vickers

Company Guide


Peer comparison

Beijing En t erp rises

Clean Energy(1250 HK )

G CL New Energy(451 HK )

Un it ed PV(686 HK )

X iny i So lar(968 HK )

F Y17F construction cost(Rmb/watt)

7 6 - 6.5 8 5 - 5.5

F Y16 new on-grid capacity 946 MW 1,822 MW 315 MW 854 MW

F Y16 total on-grid capacity 946 MW 3,138 MW 1,291 MW 1,464 MW

F Y17 expansion target 1 GW 1 - 1.5 GW 300 - 500 MW 600 - 800 MW

Geographic distribution Zone 2 ,3 Zone 1 , 2 ,3 , ov erseas (U.S,J apan)

Zone 1 , 2 ,3 , ov erseas(U.K)

Zone 2,3

IRR Requirement 8% project IRR 12% equity IRR 8% equity IRR 15% equity IRR

Average utilisation hour 1,200 1,260 1,300 1,100

Curtailment rate 0% 3% >9% 0%Projects in subsidycatalogue(first sev en batches)

350 MW 2,200 MW 1,200 MW 750 MW

Strategy Dev elop utility -scale anddistributiv e projects in

regions withoutcurtailment. Tab into

other renewable energyindustry

Focus in utility -scaleprojects, light on distributiv eprojects. Periodically dispose

projects on-hand tostrengthen financial position

Try to delev erage, tap onone-belt one-road

opportunities domesticallyand ov ersea

Mainly dev elop project inzone 3 and tender for

pov erty allev iation program

F Y16 effectiv e interest rate 2.6% 5.3% 9.2% 2.0%

F Y16 net D/E 135% 411% 493% 78%

Major shareholder Beijing Enterprises WaterGroup (371 HK), CITIC

Securities

GCL Poly (3800 HK) China Merchants NewEnergy , ORIX Corporation

Xiny i Glass (868 HK)

Remark Rising star in the solarpower industry with

strong SOE backgroundand management team.

Better than peers projectacquisition and financing

ability to driv e growth.

Top non-SOE firm withstrong project dev elopment

team. Long track record inthe solar industry . Lookingto expand in the ov erseas

market.

Slower expansion and highfinancing costs to dragearnings growth. Cashflow is expected to bestrong with 1.2GW of

projects included in thefirst 7 batches of subsidy

pay ment

Low cost developer withsolid regional influence in

Anhui, but capacityexpansion speed slowed

down on limitedgeographic exposure.

Downstream solar powerbusiness could become a

y ield co structure afterspinoff, which can be

attractiv e to y ield seekinginvestors


Company Guide


Peers’ valuation

3m av g

daily

M k t t rading EPS grow th PE PE PEG Y ield Y ield P/Bk P/Bk ROE ROE NetPrice Cap v alue 17F 18F 17F 18F 17F 17F 18F 17F 18F 17F 18F gearing

Company Name Code Local$ US$m US$m % % x x x % % x x % % %

Solar

HK solar equipment suppliers

GCL-Poly Energy 3800 HK 0.81 1,929 11.4 (9.0) 10.8 6.9 6.2 16.9 0.0 0.0 0.6 0.5 8.8 9.0 146.6

China Singyes Solar 750 HK 3.31 354 1.1 (13.6) 8.2 5.0 4.7 (1.5) 1.7 1.7 0.5 0.5 10.9 10.7 84.1F lat Glass Group 'H' 6865 HK 1.44 83 0.2 (10.7) 23.6 4.1 3.3 0.8 6.1 8.1 n.a. n.a. 18.7 23.2 Cash

Asahi Glass 5201 J P 4820 10,105 40.6 46.0 4.2 16.1 15.4 0.7 2.1 2.2 1.0 1.0 6.3 6.3 26.3

8.0 7.4 4.2 2.5 3.0 0.7 0.6 11.2 12.3 85.7

Solar pow er prov idersGCL New Energy* 451 HK 0.39 952 0.5 228.2 35.0 6.4 4.8 0.1 0.0 0.0 1.2 0.9 19.8 21.7 411.0

Beijing Ents.Cn.En.Gp.* 1250 HK 0.185 1,287 0.5 25.0 38.2 10.6 7.6 0.3 0.0 0.0 1.7 1.4 18.6 20.4 135.0

Xiny i Solar Holdings* 968 HK 2.2 2,094 4.3 10.5 15.8 6.8 5.8 0.5 6.8 8.0 1.7 1.5 30.3 28.5 78.0

7.9 6.1 0.3 2.3 2.7 1.5 1.3 22.9 23.6 208.0

China IPPs

Huaneng Power Intl.'H' 902 HK 5.53 10,769 24.1 (51.9) 80.4 17.8 9.9 (2.6) 3.0 5.3 0.9 0.8 5.0 9.2 194.6

China Res.Power Hdg. 836 HK 15.48 9,540 15.6 (20.6) 30.4 12.1 9.3 6.8 5.5 5.7 1.0 1.0 8.6 10.9 124.6

China Power Intl.Dev . 2380 HK 2.81 2,648 8.1 (35.2) 43.1 11.6 8.1 (3.1) 4.2 6.0 0.6 0.6 5.8 8.3 166.1

Huadian Power Intl.'H' 1071 HK 3.54 4,343 7.8 (49.5) 96.9 19.2 9.8 (60.8) 2.3 4.5 0.7 0.7 3.2 7.5 256.0

15.2 9.2 (14.9) 3.8 5.3 0.8 0.8 5.7 9.0 185.3

Other renew able pow er

Chin.Longyuan 'H'* 916 HK 5.74 5,910 9.5 18.2 12.4 9.9 8.8 0.7 2.0 2.3 0.9 0.8 9.5 9.9 202.4

Huaneng Renews. 'H'* 958 HK 2.4 3,249 10.4 9.2 0.5 7.0 7.0 1.5 2.1 2.2 0.9 0.8 14.0 12.6 250.0

China Datang 'H' 1798 HK 0.84 783 0.2 170.4 34.2 10.0 7.4 0.1 2.3 2.9 0.5 0.4 5.0 6.4 507.0

CGN New Energy 1811 HK 1.09 599 0.7 (7.8) 11.8 8.2 7.3 5.5 1.4 1.4 0.8 0.7 9.1 9.9 281.0

8.8 7.6 1.9 2.0 2.2 0.8 0.7 9.4 9.7 310.1

# FY17: FY18; FY18: FY19

Source: Thomson Reuters, *DBS Vickers

Company Guide


Top tier renewable energy platform

Solar-focused mixed renewable energy player. BECE is a comprehensive renewable energy developer and operator in China with a focus on the solar power sector. As at the end of FY16, the group has a total on-grid capacity of 946MW and

48MW for solar power and wind power. It also plans to extend into other clean energy businesses such as geothermal energy, hydropower, micro-grid technology, and energy storage, which we believe are great addition in the clean energy space.

Business functions

B e ijing Enterprises Clean Energy

S o lar Wind O t hers

G r ound-m ounted solar

power

D istributed solar power

M icro grid, energy storage Design and construct micro-

grid projects, R&D on energy storage technologies

O t her r e newable

e nergy

E nergy trading sc heme

Green certificate and carbon trading

platform, direct power supply

G e othermal power B iomass Hy dropower

Under planning


Development history

Year Key Dev elopment s

Dec-14 BEWG, CITIC PE and several investors subscribed ordinary and convertible preference shares @ HK$0.079 (backdoor listing)

Feb-15 F irst large framework agreement signed with Hebei government on photovoltaic power project (3GW between 2015 to 2020)

May-16 Secured the first poverty allev iation project (25MW) in Hebei

Aug-16 Tuspark Technology was introduced as a strategic investor by subscribing 4.045bn shares @ HK$0.17

Aug-16 Successfully acquired the first wind power project (48MW) in Shandong

Sep-16 Secured the first Top Runner project (50MW) in Baotou

Source: DBS Vickers

Company Guide


Strong backing from major shareholders. Beijing Enterprises Water Group (BEWG), CITIC Securities, and TUS-Holdings are the major shareholders of BECE, accounting for 74% of the total stake as at the end of Dec 2016. We believe the group can leverage on the strong execution ability of BEWG, funding ability of CITIC Securities, and technological background of TUS-Holdings to grow its renewable energy business.

BECE conducted backdoor listing in 2015 through share subscription. Its predecessor, Jin Cai Holdings Company Limited, was a cigarette packaging manufacturer in China. The cigarette packaging business accounted for 6% of total revenues in FY16, which we believe will eventually be disposed of.

Shareholding structure

Beijing Enterprises

Water Group

CITIC Private Equity Funds Management

BE CE

Public

35.5% 15.2% 8.1%

TUS Holdings

15.2%

CITIC PE Funds II Limited

26%

*As of end Dec 2016, convertible preference shares accounted for 15% of the total outstanding shares.


Exceptional execution ability. We see shadows of BEWG’s robust growth model and strong execution ability in BECE. BEWG is the leading wastewater treatment provider in China with treatment capacity of 10.5m tons as of the end of 2016. Under the management and guidance of Honorary Chairman Mr. Hu Xiaoyong, BEWG’s earnings CAGR reached 144% from 2012 to 2016. Mr. Hu was appointed as the Chairman of BECE after the share subscription in 2015, and we believe he will provide invaluable insights to BECE’s development strategy. There was some traction gained in 2016, with 946MW of solar power projects connected on-grid.

Mr. Huang Weihua has been appointed as CEO and Mr. Wang Ye as Executive Director of BECE, which is expected to spark synergy with BECE’s brand name in the development of wind and solar power. Mr. Huang has over 30 years of operational and management experience in energy-related and environmental protection-related industries. He also served in senior roles in the wind power industry including Chairman at Beijing Khanwind Technology Company Limited, Chairman at Zhejiang Windey Engineering Co, and Vice General Manager at China Energy Conservation Wind Power Generation Investment Company (601016 CH).

Mr. Wang is mainly responsible for the development of solar power business for the group. He has extensive experience in the industry and served as the technology director of CGN Solar Energy Development Co. between 2009 and 2014. He has been involved in the construction and development of over 1GW of solar power projects in China, including the construction of the largest grid-connected / off-grid solar projects in China.

Enhanced R&D capability. TUS-Holdings became the third largest shareholder of the group in 2016 by subscribing 4,045m shares at HK$0.17ps. By leveraging on TUS-Holdings’ leading research and development capability, we believe BECE can stay ahead of the competition in the renewable energy industry. TUS-Holdings was established in 2000 in reliance on Tsinghua University with AUM exceeding Rmb100bn. TUS-Holdings has accumulated extensive management and operational experiences by establishing more than 130 innovation bases worldwide in high-tech and high-growth industries such as environmental, healthcare, digital information and renewable energy.

In addition, BECE made technological breakthroughs in distributed photovoltaic power business. The innovative “photovoltaic fish-bellied truss” technology can resolve heavy construction costs and high technical difficulties in regards to the installation of distributed solar power system in sewage treatment plants. BECE won two national awards by applying the technology for a pilot project in a water treatment plant in Hebei province, demonstrating its strong R&D ability.

Competitive financing. Backed by CITIC Securities and Beijing Enterprises Group, BECE possesses strong financing ability that is essential for its capital intensive business. As of the end of FY16, the effective interest rate (financing cost / average interest-bearing debts) stood at 2.6%, below United PV’s 9.2% and GCLNE’s 5.3%. Furthermore, BECE is able to obtain favourable terms on its financial leasing agreements. It raised over Rmb5bn from 2016 from financial leasing and most of the loans were offered at a discount to the PBOC rate.

Effective interest rate comparison

BECE(1250 HK )

Un it ed PV(686 HK )

G CL NE(451 HK )

FY16 net debt/totalequity

134% 493% 297%

Average debt(FY16 & FY15)

HKD 3,982 CNY 11,607 CNY 18,297

FY16 financing costs HKD 104 CNY 1,066 CNY 966

Effectiv e interest rate 2.6% 9.2% 5.3%Non-rmb loan % 30% 37% 6%


Company Guide


Recent financial leasing summary

Dat e Lessor A mount (Rmb m) Durat ion (y ears) Rat e

May-17 CITIC Leasing 286 10 PBOC rate

Mar-17 Bank of Beijing F inancial Leasing 830 3 PBOC rate

Mar-17 ICBC Leasing 300 10 discount to PBOC rate

Mar-17 ICBC Leasing 350 10 discount to PBOC rate

Feb-17 Everbright Leasing 500 10 discount to PBOC rate

J an-17 ICBC Leasing 280 10 discount to PBOC rate

J an-17 Bank of Beijing F inancial Leasing 100 10 PBOC rate

Dec-16 CITIC Leasing 330 10 discount to PBOC rate


Dec-16 Huaneng Leasing 295 10 PBOC rate


Dec-16 Huaneng Leasing 84 3 premium to PBOC rate






Company Guide


Solar power will be the bright spot

Rapid capacity expansion. We are confident that the group has solid execution and project acquisition ability to drive earnings growth. BECE had a strong year in 2016, adding 946MW of on-grid solar projects. BECE targets to reach total grid-connected capacity of 2GW in 2017, which looks achievable given the ample project pipeline of over 1.1GW. We estimate on-grid capacity to reach 2.1GW and 3.3GW in 2017 and 2018 respectively, which will boost earnings growth in the next few years as operating capacity ramps up. Thanks to optimized project allocation, its downstream solar projects are located in zone 2 and 3 with no curtailment. Assuming an average utilisation of 1,200 hours, electricity sales from solar power is expected to increase 592% and 69% y-o-y in FY17 and FY18.

Solar projects

Locat ion Z one # of plant s On-grid capac it y(MW)

Hebei 2,3 9 252

Anhui 3 5 175

Henan 3 2 154

Shandong 3 2 59

Shaanxi 2,3 2 159

J iangxi 3 2 47

Hubei 3 1 27

Shanxi 2,3 1 20

The Tibet 3 1 30

Yunnan 2 1 22

T otal 26 946


Accumulated grid-connected capacity - solar power

0

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CAGR: 69%


Thanks to its strong SOE background, BECE completed 650MW of EPC projects in 2016. BECE signed a MOU with TUS-Holdings for the right to acquire Beijing Tsingyun, which would enhance the company’s EPC business. Beijing Tsingyun is mainly engaged in contractor related work, technology development, technology consultation and technology services in relation to solar system and equipment. It has completed over 700MW of EPC projects with a rich project pipeline. Therefore, we are positive on its ability to grow the EPC business. We estimate revenues derived from EPC business to grow 58% and 21% for FY17F and FY18F respectively.

We reckon BECE has the potential to emerge as one of the leading solar power players in China. Firstly, its parent company BEWG has a proven track record in project acquisition ability in the wastewater treatment industry, and the strong growth is likely to be replicated in the clean energy industry. Secondly, despite the short operating history in the solar power sector, it is one of the top five developers in the Top Runner Programme in terms of number of projects secured in 2016. Since project developers in the Top-Runner Programme are required to go through a rigid bidding process in terms of feed-in-tariff (FIT), technology, and quality, BECE has clearly demonstrated its growth potential. Thirdly, the management team has extensive experience within the solar power industry (refer to appendix), which will spark synergy with the group’s brand name.

Distributive solar to support growth. BECE is in a solid position to capture the growth in distributive solar power. The government has a target to reach 60GW in accumulated installed capacity for distributive solar power by 2020 from 6GW in 2015. Even though the government’s target seems to be very ambitious, we expect to see robust growth in the distributive solar power generation systems. BECE is in a strong position to capture any opportunities arising from the segment. In fact, it has signed agreements with BEWG, Beijing Properties and China Nanshan Development Incorporation to construct and operate distributive solar power plants on their respective properties. It will commence construction at BEWG’s wastewater treatment plants this year with aggregate installed capacity of 60MW. BECE is also negotiating with other large SOEs such as Beijing Capital Agribusiness Group and Capital Airports Holding, demonstrating its strong relationship with the government.

Company Guide


Comprehensive renewable energy play in the long run

Riding along with the wind. Apart from solar power, BECE will focus on wind power development starting this year. It has setup a dedicated wind power development team who had experience working in Xinjiang Goldwind at the beginning of the year. It targets to triple wind power capacity this year to 150MW from 48MW in 2016. BECE will strategically expand in regions with strong demand to avoid curtailment issues. We assume 100MW and 400MW of wind power capacity will be added in FY17 and FY18. Given the amount of resources the company has put in wind power, we believe there is upside potential to our estimates. Assuming utilisation hours of 1900, revenues from wind power is expected to reach HK$81m and HK$242m in FY17 and FY18 respectively.

Grid-connected capacity - wind power

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Synergies among clean energy businesses. BECE will also diversify into other clean energy businesses such as hydropower, geothermal energy, and micro-grid technologies, and energy storage. Despite the smaller scale of these businesses compared to solar/wind power, they have good growth potential and would be a great addition in the renewable energy space. An innovation centre was set up jointly with Huawei dedicated to research and development of clean energy technologies. Along with the cooperation with Tsinghua University, we believe the group is in a strong position to tap on rapid technological advancements.

Company Guide


Financial analysis

BECE should be able to achieve strong earnings CAGR of 46% between FY16-FY19, which will be mainly driven by the increase in solar power’s installed capacity and margin expansion from a larger proportion of higher margin electricity sales.

We are projecting that revenue will increase by 94% and 35% in FY17 and FY18 respectively, supported by the strong growth in electricity sales and EPC services. We expect average solar power FIT to decline 8% and 14% in FY17 and FY18 respectively. The steeper FIT decline in FY18 takes into consideration of the recent FIT adjustment. We expect new installations for solar power will reach 1.2GW in each year from FY17 to FY19. . Thanks to optimized project allocation, its downstream solar projects are located in zone 2 and 3 with no curtailment. We conservatively assume flat utilisation hours of 1,200, electricity generated from solar power is projected to increase 662% and 77% in FY17 and FY18.

For wind power, we conservatively factor in 100MW and 400MW of new installation in FY17 and FY18. Our FIT assumes 0.55/kwh and 0.52/kwh for FY17 and FY18, which is in line with the government’s FIT for zone 3 and 4. We assume utilisation hour of 1,900 and expect revenue contribution from the wind power electricity generation will remain below 10% until FY19.

For the EPC business, since only few months of contributions were made in FY16, we estimate the amount of projects to grow 70% and 30% to reach 1.1GW and 1.4GW in FY17 and FY18 respectively. We estimate the revenue from EPC business to increase 58% and 21% in FY17 and FY18.

Revenue breakdown

0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000

10,000

2016 2017 2018 2019

Solar Wind Cigarette packaging

HK$ m


Revenue breakdown – Solar

0%

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EPC Electricity sales

Others growth (RHS)

HK$ m


We expect the gross profit margins (GPM) will expand from 28.3% in FY16 to over 42% in FY19, attributable to increasing proportion of higher margin electricity sales and lower average construction costs. GPM from solar power electricity sales was 58% in FY16 compared with 18% for EPC construction revenue. We expect sales from solar power electricity to reach 33% of total revenue in FY18F from 7% in FY16 as capacity ramps up. Also, GPM for solar power electricity sales is expected to increase from 58% in FY16 to above 65% in FY17 as capacity ramps up.

Depreciation and amortisation accounts for a significant portion of GPM, therefore lower construction cost will be positive to margins and ROE. Less than 20% of the on-grid projects in 2016 are self-developed while the rest are from M&A. The construction cost for self-developed projects is c.Rmb7/watt, compared to c.Rmb8.5-9/watt for projects through M&A. BECE will increase the proportion of self-developed projects to >50% in 2017, driving down average construction costs and lifting GPM from 28% in FY16 to 38% in FY18F.

Company Guide


Overall GPM vs solar power electricity sales

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8,000

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Solar power electricity sales (LHS)Others (LHS)GPM (RHS)

(HK$ m)


We expect operating expenses to sales ratio to decline from increased economies of scale. We forecast general and administrative expenses to sales ratio to decline from 7.6% in FY16 to 6.3% in FY18F. We estimate other income will decline 60% y-o-y to HK$40m in FY17 as we strip out the HK$77.6m one-off government investment incentive for investment in Inner Mongolia.

The net gearing of the group reached 135% in FY16. However, taking into consideration estimated capex of HK$11bn in 2017, net gearing is expected to reach 272% by the end of FY17. On the other hand, BECE has setup a fund with various asset management companies including CR SZITIC Trust for the investment in renewable energy projects. We believe some of the existing projects could be sold to the fund in order to ease capital needs

Key Risks

Slow capacity expansion. Inability to continue to add projects in the pipeline or a delay in the on-grid process of projects on hand will drag down earnings growth.

Adverse government policy. Industry sentiment is greatly affected by the change in government policy. A steep cut in feed-in-tariffs, delay in subsidy payments and lower installation targets would dampen sentiment.

Higher curtailment rate. Lack of grid infrastructure, low energy demand and oversupply in energy production could result in an increase in the curtailment rate. Lower curtailment rate will reduce project return.

Interest rate hikes. As the company expands operating capacity and debt levels increase, an interest rate hike will increase financing costs and negatively affect earnings.

Company Guide


Appendix

Industry overview

Expect new installations for solar power to reach 28-30GW this year in China

Market concentration will increase among industry leaders as they start to gain market share from the increase in the proportion of solar power projects that come up for bidding in China.

Downstream solar power operators are heading towards a stronger year from lower curtailment and repayment of subsidies.

The solar power industry could deliver another decent year in China, driven by the rapid increase in distributive solar projects. According to the National Energy Bureau (NEA), new installations for solar power reached 7.2GW in 1Q2017, which is flat compared to last year’s first quarter growth of 7.1GW. Thanks to government support, new installations for distributive solar power grew 145% y-o-y to reach 2.4GW. We expect new installations in 2017 will reach 28GW – 30GW, comprising of 22GW of ground-mounted projects and 6-8GW of distributive projects. Looking ahead, we believe total installations for solar power could exceed 150GW by 2020, well beyond the government’s minimum target of 105GW.

Cumulative solar power capacity in China

Source: NEA, DBS Vickers

More Top Runner Programmes. We expect the government to increase the proportion of Top Runner Programmes, which is positive for industry leaders with leading technologies and low construction costs. The NEA introduced the Top Runner Programme in 2015, which requires solar power developers to go through a vigorous bidding process looking at criteria such

as development history, feed-in-tariff and technology specifications.

The total size of projects included in the Top Runner Programme has increased substantially since its introduction. There were 3GW and 5.5GW of projects in the first and second batch of the Top Runner Programme. The NEA issued an opinion-seeking paper for the third batch of solar power Top Runner Programme, and it is expected that approximately 8-10GW of projects will be available for bidding in the top runner programme in 2017. The technological requirements have been further tightened. The conversion efficiency for mono-silicon/poly-silicon module increased from 17%/16.5% to 18%/17% respectively.

The super Top Runner Programme was also introduced in order to encourage technological advancement. Each super top runner construction base will be larger than 500MW and construction has to be completed within three years. Even though the total size is not specified, industry leaders with high-end technologies will benefit. The super Top Runner Programme will focus more on technology instead of cost reduction, which is positive for overall industry development. Technology and on-grid tariff account for 40% and 30% of the bidding score, compared to 15% and 35% for normal Top Runner Programmes.

Top Runner Programmes

Bat c h Siz e(G W)

% o fquot a

T ime PV modu le c onv ers ionrequ irement

1 3 17% 2015 Poly silicon : 16.5%Monosilicon : 17%

2 5.5 30% 2016 Poly silicon : 16.5%Monosilicon : 17%

3 8-10 >50% 2017 Poly silicon : 17%Monosilicon : 18%


Clearing up the first six batches of subsidy payments. As the 7th batch of subsidy catalogue was open for applications in 1H17, we are expecting the outstanding subsidy payments for projects in the first six batches to be repaid by the end of this year. In fact, the NEA filed a notice in May 2017 that it intends to clear the first six batches of subsidy payments. Currently, most of the projects in the first five batches are receiving regular payments and projects in the 6th batch had received subsidy payments up to 2Q16 depending on the region. The outstanding subsidy payments will help to alleviate cash flow pressure for downstream operators.

The Ministry of Finance (MOF) filed a notice that the 7th batch of subsidy catalogue was opened in March 2017, and projects connected on-grid before the end of March 2016 will be eligible. The total size of projects eligible for the 7th batch is estimated to

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GW GW

Company Guide


reach 17GW. With the rollout of the green certificate program, we believe some of the projects will apply for green certificates instead of subsidy payments, which will help to relieve the government’s funding pressure.

Green certificates on the way. We reckon China will gradually adopt the green certificate trading system with the intention to lower the subsidy payment burden held by the government. The green certificate program will serve as an alternative for feed-in-tariff subsidy for new projects.

The National Development and Reform Commission (NDRC) has issued a notice for implementation, on a trial basis, of voluntary subscription of renewable energy green certificate trading system. Ground-mounted solar power and onshore wind power will be eligible to receive one green certificate for each MWh of electricity produced, but the amount will no longer be eligible for feed-in-tariff subsidies. These green certificates are expected to trade on an electronic platform and we expect sellers to receive timely payments.

The trial run for green certificate trading will begin starting July 2017. Each green certificate can only be traded once and the bidding price cannot exceed the relevant renewable energy subsidy. Renewable Portfolio Standard (RPS) is expected to be implemented in 2018 after the trial run, which sets the proportion of electricity produced or procured from fossil fuel energy and renewable energy. We believe the implementation of RPS is essential for the green certificate trading system as it will help to boost demand for green certificates.

Curtailment on a downtrend. Thanks to the government’s push in optimising energy structure, higher growth in electricity consumption and construction of ultra high voltage network, we see positive signs in curtailment rate reduction. According to the NEA, the curtailment rate declined from 13.9% in 1Q2016

to 9.7% in 1Q2017. The curtailment rate for solar power is mainly concentrated in Northwestern regions. Xinjiang and Gansu had the highest curtailment rate of 39% and 19% respectively. The government has a target for the curtailment rate for solar power to reach below 5% by 2020. We reckon the curtailment rate target is achievable as new installations shift towards the middle eastern part of China where there is higher energy demand. However, the curtailment rate for northwestern regions is expected to remain elevated. According to Northwest China Energy Regulatory Bureau, the curtailment rate for Xinjiang and Gansu will remain above 20% by 2020. Thus, solar power developers may avoid expanding in these regions unless the situation improves.

Curtailment rate – China

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Gansu Xinjiang Ningxia Overall

1Q16 1Q17


Company Guide


Key Management Team

M anager A ge A ppo in t ment Prev ious ex perienc e O w nersh ipMr. Hu Xiaoy ong 52 ED & Chairman Appointed as the chairman and ED of the company in 2015. Graduated from

Tsinghua Univ ersity , he has ov er 20 y ears of experience in businessmanagement. He worked as the chairman of Zhong Ke Cheng Env ironmentProtection Group Company Limited from 2001 to 2013. He has been an EDand CEO of BEWG from 2008 to 2016. He was appointed as the honorarychairman of BEWG since March 2016. He is also the ED of Beijing EnterprisesMedical and Health Industry Group (2389.hk).

3.7%

Mr. Shi Xiaobei 41 ED Appointed as the ED of the company in 2015. He is a member of remunerationcommittee of the company . Graduated from Univ ersity of InternationalBusiness and Economics with a bachelor's degree and obtained MBA degreefrom the Univ ersity of British Columbia. He has approximately 12 y ears'experience in banking and inv estment serv ices industry in Hong Kong andChina. He worked as the president and managing director of infrastructure,resources and general industrial business of Macquarie Inv estment Adv isorybetween 2004 to 2012. Since 2012, he worked as the department head ofinternational inv estment department in CITIC Priv ate Equity F undsManagement Co. Ltd.

N/A

Mr. Huang Weihua 53 ED & CEO Appointed as the CEO and ED of the company in 2017. Graduated fromTsinghua Univ ersity , he has ov er 30 y ears of operational and managementexperiences in energy -related, clean energy -related and env ironmentalprotection-related industries. Prior to joining the company , he was thechairman of Beijing Khanwind Technology Company . He also serv ed as thechief engineer of Beijing State Inv estment Energy Conserv ation Company , av ice general manager of China Energy Conserv ation Wind Power GenerationInv estment Company Limited, the chairman of Zhejiang Windey EngineeringCo, and a general manager of General Water of China.

N/A

Mr. Wang Ye 63 ED & President Appointed as the president and ED in 2015. Mr. Wang is responsible for theimplementation of the dev elopment strategy for the company 's solar powerbusiness. He has ov er fiv e y ears of working experience in the solar powerindustry . He was the technology director of CGN Solar Energy from 2009 to2014 where he was responsible for the construction of c.30 solar powerplants with installed capacity of 600MW. He led the writing of technicalcodes of solar power generation equipment, which hav e been widely adoptedin the solar power generation inudstry .

1.5%

Mr. Wen Hui 45 ED Mr. Wen has rich operational and management experiences in clean energy -related and env ironmental protection-related industries. He serv ed as thechairman and president of Beijing Tus Clean Energy Technology Company Ltd,the chairman of Beijing Tus-Tsingy un Energy Technology Company Ltd, v icechairman of Suzhou Yadu Env ironmental Technology Company Ltd, presidentof Beijing Yadu Interior Env ironmental Technology Company , and v ice generalmanager of Beijing Yadu Technology Company Ltd.

N/A

Source: Company

Company Guide


Earnings Drivers:

Rapid capacity expansion. We are confident in the group’s solid execution and project acquisition ability to drive earnings growth. BECE has great potential to become one of the leading solar power developers in China by leveraging on its major shareholders: Beijing Enterprises Water Group (BEWG), CITIC Securities, and TUS-Holdings. In fact, it is one of the top five developers for the Top Runner Programme in terms of number of projects secured in 2016.

Successful penetration into other renewable power sectors should lift earnings growth prospects. Apart from solar power, BECE will focus on wind power development starting this year. In 1Q17, it set up a dedicated wind development team from Xinjiang Goldwind and appointed Mr. Huang Weihua as the new CEO who has extensive experience in the wind sector. Even though it is targeting to add 100MW in FY17, we believe there is ample upside in the wind power business segment.

Favourable government policies. We reckon government policies can significantly affect the profitability of the company and drive share price. The government’s push for top-runner program and distributive solar power projects will benefit industry leaders and support new installation.

BECE and its stakeholders have strong SOE background and made significant contribution in the environmental space, allowing them to have an edge when it comes to project bidding. In addition, the government targets to increase the accumulated installed capacity for distributive solar power to 60GW by 2020 from 6GW in 2015. And we reckon BECE can leverage on its developed network to expand in the distributive solar power segment. In fact, it signed agreements with BEWG, Beijing Properties and China Nanshan Development Incorporation to construct and operate distributive solar power plants on the respective properties.

Total power generation (GWh)

Solar power installed capacity (MW)

Wind power installed capacity (MW)

EPC projects (MW)


Company Guide


Balance Sheet:

BECE’s net gearing ratio was 135% at the end of FY16. We expect the capex to amount to HK$11bn in FY17 from solar and wind power capacity expansion. The net gearing ratio is expected to reach over 250% by the end of FY17F. However, BECE has setup a fund with various asset management companies including CR SZITIC Trust this year for the investment in renewable energy projects. We believe some of the existing projects could be sold in order to ease capital needs. Share Price Drivers:

Strong capacity expansion. By leveraging on its strong SOE background, BECE has strong project acquisition ability to drive earnings growth. Moreover, it has setup an experienced wind power development team in 1Q2017 and we expect to see strong growth in the new sector. Favourable government policy. The tightening of top-runner program requirement will benefit industry leaders with track record and technologies. Higher than expected amount of solar installation quota, lower than expected downward adjustment in FIT and faster than expected subsidy payments will also be positive for downstream operators.

Key Risks:

Slow capacity expansion. Inability to continue to add projects in the pipeline or a delay in the on-grid process of projects on hand will drag down earnings growth.

Company Background:

Beijing Enterprises Clean Energy (BECE) is a comprehensive renewable energy developer and operator in China with a focus in the solar power sector. As of the end of FY16, the group has a total on-grid capacity of 946MW and 48MW for solar power and wind power. It also plans to extend into other clean energy businesses such as geothermal energy, hydropower, micro-grid technology, and energy storage, which we believe are great addition in the clean energy space.

Leverage & Asset Turnover (x)

Capital Expenditure

ROE

Forward PE Band

PB Band


Company Guide


Key Assumptions

FY Dec 2016A 2017F 2018F 2019F Total power generation (GWh)

262.0 1,838.4 3,459.9 5,530.3

Solar power installed capacity (MW) 945.8 2,145.8 3,345.8 4,545.8 Wind power installed capacity (MW) 48.0 148.0 548.0 948.0 EPC projects (MW) 650.0 1,105.0 1,436.5 1,580.2

Segmental Breakdown (HK$ m)

FY Dec 2015A 2016A 2017F 2018F 2019F Revenues (HK$ m) Solar 49 2,701 5,350 7,163 8,283 Wind 0 21 80 243 564 Cigarette Packaging 240 169 169 169 169 Total 289 2,890 5,599 7,574 9,016 GPM (HK$ m) Solar 23 726 1,883 2,762 3,506 Wind 0 11 48 146 338 Cigarette Packaging 83 51 51 51 51 Total 106 788 1,982 2,959 3,895 GPM Margins (%) Solar 47.1 26.9 35.2 38.6 42.3 Wind N/A 53.9 60.0 60.0 60.0 Cigarette Packaging 34.7 30.2 30.2 30.2 30.2 Total 36.8 27.3 35.4 39.1 43.2 Source: Company, DBS Vickers

Company Guide


Income Statement (HK$ m)

FY Dec 2014A 2015A 2016A 2017F 2018F 2019F Revenue 209 289 2,890 5,599 7,574 9,016 Cost of Goods Sold (131) (160) (2,073) (3,616) (4,615) (5,121) Gross Profit 79 129 817 1,982 2,959 3,895 Other Opng (Exp)/Inc (31) (82) (224) (360) (472) (543) Operating Profit 48 47 593 1,623 2,487 3,352 Other Non Opg (Exp)/Inc 1 20 95 34 45 54 Associates & JV Inc 0 0 0 0 0 0 Net Interest (Exp)/Inc (2) (1) (99) (498) (992) (1,567)

Dividend Income 0 0 0 0 0 0 Exceptional Gain/(Loss) 0 0 78 0 0 0 Pre-tax Profit 46 66 666 1,159 1,540 1,839 Tax (17) (27) (137) (174) (185) (221) Minority Interest 0 0 (24) (34) (41) (42) Preference Dividend 0 0 0 0 0 0 Net Profit 29 38 505 951 1,314 1,576 Net Profit before Except. 29 38 428 951 1,314 1,576 EBITDA 57 76 802 1,875 3,000 4,155 Growth Revenue Gth (%) N/A 38.0 900.3 93.7 35.3 19.0 EBITDA Gth (%) N/A 33.5 948.0 133.9 60.0 38.5 Opg Profit Gth (%) N/A (1.3) 1,162.

173.6 53.3 34.8

Net Profit Gth (%) N/A 33.8 1,212.

88.2 38.2 19.9 Margins & Ratio Gross Margins (%) 37.7 44.7 28.3 35.4 39.1 43.2 Opg Profit Margin (%) 22.7 16.3 20.5 29.0 32.8 37.2 Net Profit Margin (%) 13.7 13.3 17.5 17.0 17.4 17.5 ROAE (%) 22.4 3.2 15.4 18.6 20.4 20.0 ROA (%) 14.3 2.4 5.0 3.9 3.4 3.0

ROCE (%) 20.4 2.0 6.3 7.7 7.3 6.8

Div Payout Ratio (%) N/A N/A N/A N/A N/A N/A

Net Interest Cover (x) 20.5 51.0 6.0 3.3 2.5 2.1 Source: Company, DBS Vickers

Company Guide


Interim Income Statement (HK$ m) FY Dec 1H2015 2H2015 1H2016 2H2016

Revenue 113 176 618 2,273 Cost of Goods Sold (72) (87) (427) (1,646) Gross Profit 41 88 190 627 Other Oper. (Exp)/Inc (28) (54) (64) (160) Operating Profit 13 34 126 467 Other Non Opg (Exp)/Inc 0 19 2 92 Associates & JV Inc 0 0 0 0 Net Interest (Exp)/Inc (1) 0 (20) (79) Exceptional Gain/(Loss) 0 0 0 0 Pre-tax Profit 12 54 108 479 Tax (8) (19) (37) (100) Minority Interest 0 0 (6) (19) Net Profit 4 34 66 361 Net profit bef Except. 4 34 66 361 Growth Revenue Gth (%) N/A N/A 446.0 1,192.4 Opg Profit Gth (%) N/A N/A 902.6 1,257.0 Net Profit Gth (%) N/A N/A 1,538.7 946.1 Margins Gross Margins (%) 35.9 50.3 30.8 27.6 Opg Profit Margins (%) 11.1 19.6 20.4 20.5 Net Profit Margins (%) 3.5 19.6 10.6 15.9 Source: Company, DBS Vickers

Company Guide


Balance Sheet (HK$ m)

FY Dec 2014A 2015A 2016A 2017F 2018F 2019F

Net Fixed Assets 94 418 9,543 20,525 32,995 44,253 Invts in Associates & JVs 0 0 0 0 0 0 Other LT Assets 26 511 2,449 2,780 3,551 4,110 Cash & ST Invts 129 1,098 1,633 1,230 1,352 1,260 Inventory 35 30 33 61 82 98 Debtors 84 405 1,295 2,118 3,493 4,696 Other Current Assets 35 318 2,625 3,937 5,119 5,630 Total Assets 402 2,779 17,579 30,651 46,592 60,047 ST Debt

30 181 1,727 3,727 7,227 10,227 Creditors 96 186 1,144 1,585 1,897 1,964 Other Current Liab 14 141 3,943 5,915 7,689 8,458 LT Debt 0 147 5,908 13,208 22,208 30,208 Other LT Liabilities 4 5 372 372 372 372 Shareholder’s Equity 257 2,119 4,450 5,776 7,090 8,666 Minority Interests 0 0 35 69 110 152 Total Cap. & Liab. 402 2,779 17,579 30,651 46,592 60,047 Non-Cash Wkg. Capital 44 425 (1,135) (1,384) (892) 1 Net Cash/(Debt) 98 769 (6,001) (15,704) (28,082) (39,174) Debtors Turn (avg days) 73.1 308.8 107.4 111.3 135.2 165.8 Creditors Turn (avg days) 143.5 341.8 123.9 146.6 153.2 161.2 Inventory Turn (avg days) 52.7 78.6 5.8 5.0 6.3 7.5 Asset Turnover (x) 1.0 0.2 0.3 0.2 0.2 0.2 Current Ratio (x) 2.0 3.6 0.8 0.7 0.6 0.6 Quick Ratio (x) 1.5 3.0 0.4 0.3 0.3 0.3 Net Debt/Equity (X) CASH CASH 1.3 2.7 3.9 4.4 Net Debt/Equity ex MI (X) CASH CASH 1.3 2.7 4.0 4.5 Capex to Debt (%) 17.6 107.2 21.7 66.1 44.0 29.7 Z-Score (X) NA NA NA NA NA NA Source: Company, DBS Vickers

Company Guide


Cash Flow Statement (HK$ m)

FY Dec 2014A 2015A 2016A 2017F 2018F 2019F

Pre-Tax Profit 46 66 666 1,159 1,540 1,839 Dep. & Amort. 9 10 119 238 486 768 Tax Paid (21) (15) (36) (174) (185) (221) Assoc. & JV Inc/(loss) 0 0 0 0 0 0 (Pft)/ Loss on disposal of FAs 0 0 0 0 0 0 Chg in Wkg.Cap. 30 (412) (488) (410) (1,084) (1,151) Other Operating CF 2 1 20 (1,346) (1,222) (554) Net Operating CF 66 (351) 280 (534) (466) 681 Capital Exp.(net) (5) (352) (1,658) (11,201) (12,938) (12,007) Other Invts.(net) (25) 0 (491) 0 0 0 Invts in Assoc. & JV 0 0 0 0 0 0 Div from Assoc & JV 0 0 0 0 0 0 Other Investing CF (15) (470) (6,509) (349) (790) (577) Net Investing CF (45) (822) (8,658) (11,550) (13,728) (12,584) Div Paid (19) 0 0 0 0 0 Chg in Gross Debt 0 303 6,880 9,300 12,500 11,000 Capital Issues 0 1,861 2,189 375 0 0 Other Financing CF (2) (3) (95) 2,006 1,815 811 Net Financing CF (22) 2,161 8,974 11,681 14,315 11,811 Currency Adjustments 0 (19) (61) 0 0 0 Chg in Cash (1) 970 535 (403) 122 (92) Opg CFPS (HK$) 0.01 0.00 0.02 0.00 0.01 0.03 Free CFPS (HK$) 0.02 (0.05) (0.04) (0.22) (0.25) (0.21) Source: Company, DBS Vickers

Company Guide


DBSVHK recommendations are based an Absolute Total Return* Rating system, defined as follows:

STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)

FULLY VALUED (negative total return i.e. > -10% over the next 12 months)

SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends Completed Date: 30 Jun 2017 14:09:48 (HKT) Dissemination Date: 30 Jun 2017 17:53:16 (HKT)

Sources for all charts and tables are DBS Vickers unless otherwise specified.

GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Vickers (Hong Kong) Limited (“DBSV HK”). This report is solely intended for the clients of DBS Bank Ltd., DBS Bank (Hong Kong) Limited (DBS HK), DBSV HK, and DBS Vickers Securities (Singapore) Pte Ltd. (“DBSVS”), its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSV HK. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., DBS HK, DBSV HK, DBSVS, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the information in this report. This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned schedule or frequency for updating research publication relating to any issuer. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk

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Company Guide


ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the DBS Group. COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd, DBS HK, DBSVS, DBSV HK or their subsidiaries and/or other affiliates have proprietary positions in Gcl-Poly Energy

Holdings Limited (3800 HK), Huaneng Power International Incorporated (902 HK), China Resources Power Holdings Company Limited (836 HK) and China Longyuan Power Group (916 HK) recommended in this report as of 28 Jun 2017.

2. Neither DBS Bank Ltd, DBS HK nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

3. Compensation for investment banking services:

DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

4. Disclosure of previous investment recommendation produced: DBS Bank Ltd, DBSVS, DBSVHK, their subsidiaries and/or other affiliates of DBSVUSA may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBSVHK, their subsidiaries and/or other affiliates of DBSVUSA in the preceding 12 months.

1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of

which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.

2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.

Company Guide


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