Promising policies in place to aid China wind power

Investors urged to see bigger picture.

Investors have been recommended to look past the near-term volatility with regard to China’s wind power sector and focus on the structural growth story of the Chinese wind power industry.

According to a research note from Maybank Kim Eng, this includes UHV transmission cable build-out and more strategic approvals of wind power projects.

Further, the report noted that it is estimated UHV transmission line development could help lower wind curtailment from 10.7% in 2013 to 8.2% in 2015E upon completion, helping to transmit wind electricity from Hebei, Gansu and Inner Mongolia to southern or eastern China.

Here’s more from Maybank Kim Eng:

Even if wind tariffs are cut, we estimate the average IRR of wind power assets of three companies is attractive at around 14.7%.

Furthermore, the two recent batches of wind project pre-approvals are mainly in regions with a low wind curtailment ratio and higher utilization hours.

We expect wind farm operators’ asset quality will keep improving to induce higher profitability. We also forecast the average earnings CAGR for the three companies will be a robust 39% (from 2013 to 2016E) on the back of a strong pipeline of pre-approved projects.

Share prices of wind farm operators have declined ~25% on average YTD. The sector is trading at around 0.52x PEG (a two-year low). We recommend investors to OVERWEIGHT the sector.

Our Top Picks are Huaneng Renewables (958 HK, TP HKD3.50) and China Longyuan (916 HK,

TP HKD11) as the development of power transmission lines across China will first benefit these two companies.

Robust capacity growth for Huaneng Renewables and stronger balance sheet for Longyuan are also among our considerations.

Datang Renewable (TP: HKD1.10), HOLD, due to large exposure to high wind curtailment regions.