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華能新能源(1)---投資要點 why positive on HNR (958.hk) 山頂洞之

958's growth canbe highly expected in 2013 by:

1) improved financial cost, less than 5.8% (2012, roughly 6.5%) due to the interest cut and monthly government grant payment from clients(NDRC is transferring its duty to Ministry of finance which, starting from thisyear, will prepay the government grant monthly to 958's client(i.e. gridcompany) first. Before, the grant was settled on average about 1 year as someprovinces were frequent (e.g. Guangdongwas monthly) while some not, like 12 or 18 months;

2) improved utilization-hour to 1850hrs (2012: 1750hrs). ChineseNational Grid has a guidence about the improvement of power curtailment thisyear to 10% overall (2012: 15%). In addition, 958's new projects launched / tobe launched mainly base in southern areas with on curtailment, so the utilization-hourpicking up trend can be expected.

3) less CDM impact comparing with its peers, due toits less proportion of CDM income in EBIT as well as conservative accountingmethod used;

4) higher efficiency in non-inner Mongoliaareas, including Shandong, Liaoning, Guizhou, Xinjiang, Jilin etc. Moreover, for Inner Mongolia, HNR has a higher exposure (30%as of 2012, 916 only 20%) but lower efficiency which brings more improvementroom for HNR's profitability if the power exchange of 4 bil KWh between the northeasternChina area and the northern China area;

5) higher on-grid tariff as its presence in richercoastal provinces like Shandong,Guangdong etc.

6) quota management policy may be implementedrecently enhancing the entry barrier to some extent;

7) increasing scale effect by stronger barginningpower against suppliers;

8) VAT on premium tariff may be exemptedsince Feb 1st 2013 which conservatively speaking may tender a netprofit of 0.02cent rmb per KWh.

9) less exposureon marine and oversea projects compared with  Longyuan. So far, domestic marine wind power technology is not mature but the cost high. So it's better to oberve the stability and maintenance cost of wind machine first. The same for the Overseas proj. which still need to pay tuition fee at current stage.