CRP’s 2020 Supported by Renewable Power; Robust Renewables Expansion Surprises

CRP’s 4.4 GW capacity addition in wind and solar projects in 2020 well exceeded prior guidance of 3.5 GW and surpassed our expectation. In total, the plan to add another 40 GW in renewable capacity over the next five years implies a five-year CAGR of 36%. We think the plan is aggressive but should be slightly offset by lower on-grid tariff and lower investment return for the new projects. As such, we raise our earnings forecast and now expect net profit to grow at a CAGR of 14% from HKD 8 billion in 2020 to HKD 15 billion in 2025. However, in tandem with its planned spending, we also expect a more aggressive increase in annual capital expenditure in the next five years to an average of HKD 36 billion from HKD 31 billion in 2020. Given stable cash flow from renewable power whose contribution to group net profit already rose to 50% in 2020, we expect its operating cash flow to increase to HKD 36 billion in midcycle, which should cover capital expenditure needs. We expect the pace of capacity expansion to gradually slow over the long term, and we maintain our fair value estimate at HKD 13.30 per share, after rolling our model forward. Our capital allocation rating is Standard.