$华电福新(00816)$ 德银最新研究报告：1Q NP + 29%, kicking off 2016 with a strong start; Buy

Despite a weak thermal performance, Fuxin delivered strong 1Q results (PRCGAAP) with reported NP up 29% yoy to Rmb505m, underpinned by strong performances of hydro and wind businesses. In our view, its 1Q resultsdemonstrate the merit of owning a diversified capacity portfolio as well as the fact that new wind capacity can still generate +ve returns even at curtailed utilizations. Moreover, it marks a turning point for the company after amediocre performance in FY14-15. Even on assumptions of zero thermal profit contribution and mild wind utilization recovery in FY16-18, it could still generate 18% 2015-18E earnings CAGR on our estimate. The stock is currently trading at 5.4x FY16 P/E and 0.6x P/B vs. ROE of 11%, significantly cheaper than non-fossil fuel power peers.

Reiterate Buy as sector top pick.　　
1Q16 net profit +29% yoy - hydro/wind/solar/gas (+), coal/nuclear (-)　　
Fuxin’s 1Q net profit was +29% yoy to Rmb505m, with the profit decline in thermal and nuclear fully offset by strong growth in hydro and wind. It accounts for 22.7%/22.4% of full-year DBe and consensus estimates (in linewith historical avg. of 22%).　　

During 1Q16, thermal and nuclear output was both affected by weak powerdem and in Fujian (especially in Jan-Feb). Thermal output was substantiallydown >40% yoy to c.2.2bn kWh (also squeezed by strong hydro that enjoys higher dispatch priority). As a result, thermal segment turned into small loss. With Fuqing unit 1 temporarily under outage during Spring Festival amid lowpower load, Fuqing nuclear utilization was down >20% yoy, leading to a lowerattributable nuclear net profit (reflected in investment income at Rmb83m vs.Rmb156m in 1Q15).　　

However, this was helped by strong clean energy performance. By segment,hydro output jumped >130% to c.3.4bn kWh, driven by extraordinarily strongwater flow; wind output rose 45% yoy to c.3.1bn kWh; for other clean energy,solar output was +15% yoy to c.0.23bn kWh and distributed gas-fired outputwas +70% yoy to c.0.56bn kWh.　

Still a robust 18% 2015-18E earnings CAGR if zero thermal profit and mild windutilization recovery in FY16-18　　

We project 18% earnings CAGR in 2015-18E for the company, driven mainly by1) wind and nuclear capacity growth, 2) interest rate decline. Our forecast hasincorporated assumed coal utilization drop to 3,400hr, under which coal-firedplants will largely be breakeven. For wind, we still assume utilization to trenddown (-3%) in FY16 before a recovery (2-3%) in FY17-18. Any improvement in wind curtailment would provide meaningful utilization/earnings upside. Inaddition, with Rmb60.5bn interest-bearing debt, the +ve impact from lower interest costs in FY16-17 may be underestimated by the market.