China Longyuan Guides Weaker 2022 Profit on Impairment Losses

China Longyuan guided that 2022 net profit will decrease by 30%-40% year on year (on a restated basis) to between CNY 4.45 billion and CNY 5.20 billion, under People's Republic of China accounting standards, largely due to impairment losses. We will issue an update pending more detailed information from the firm’s final results in late March. The guidance is disappointing and unexpected, and we see near-term pressure on its share price performance. That said, we keep our fair value estimate of HKD 14 unchanged as the one-off impairments do not affect cash flow, and we think the firm remains undervalued. We believe any pullback on Longyuan’s share price will present an opportunity to accumulate the stock, as we expect the firm to benefit from its robust renewable energy capacity growth target of 18.3% CAGR between 2020 and 2025. We think the falling wind turbine and solar panel costs should help the firm to achieve its plan.