Datang Renewable’s 2022 Results Beat Expectations on Lower Costs and One-Off Compensation

We raise our fair value estimate for Datang Renewable, or DR, to HKD 3.38 from HKD 2.98 to account for better-than-expected 2022 results. 2022 net profit rose 93.8% year on year to CNY 2.9 billion, mainly attributable to lower impairment losses, better operating efficiency, a CNY 322.7 million compensation from wind turbine suppliers, and a drop in income tax expenses. Trading at 2023 price/earnings of around 6 times and price/book ratio of 0.6 times, we think the shares are currently undervalued, but we think a higher margin of safety is warranted, given DR’s high gearing. We expect recovery in profitability and positive development on subsidy settlement to support share price performance.