CGN Power shares fall after it buys parent’s nuclear assets for 9.92bn yuan

Headline purchase is 61pc stake in Guangxi Fangchenggang Nuclear Power

PUBLISHED : Monday, 26 September, 2016, 4:48pm
UPDATED : Monday, 26 September, 2016, 9:52pm

CGN Power’s shares dropped 2.5 per cent on Monday after it revealed it was buying three assets from its parent, China’s largest nuclear power projects developer China General Nuclear Power Corp, for 9.92 billion yuan.

The company will purchase the parent’s 61 per cent stake in Guangxi Fangchenggang Nuclear Power, which is developing a 6 giga-watt nuclear power generation project in Fangchenggang, Guangxi Zhuang autonomous region.

It will also buy 100 per cent of CGN Lufeng Nuclear Power and 100 per cent of China Nuclear Power Engineering.

The proposed transaction will “further consolidate our strategic position as CGN’s sole [listed] platform for nuclear power generation, ... [improve] our construction and management capability and reduce our nuclear power [plant] construction costs”, the firm said in a filing on Monday to Hong Kong’s bourse.

CGN Lufeng is developing a 2.5 GW nuclear power plant in Lufeng, Guangdong province, which is undergoing preparatory work after receiving government approval.

CGN Engineering is a project construction management firm, which has completed 12 reactors in China since its inception in 1997. It has also won order for another 12 reactors.

Units 1 and 2 of the Fangchenggang project has total capacity of 2.17 GW and is based on the mature CPR1000 design, while units 3 and 4, which will adopt the yet-to-be-commercialised Hualong 1 third-generation design, are not yet complete.

Due to China’s surplus electricity supply, we have already seen temporary outages at the Hongyanhe and Ningde nuclear power plants, and believe these outages may gradually spread to other parts of China
Dennis Ip, head of Hong Kong and China utilities, Daiwa Capital Markets

The proposed acquisitions will bolster CGN Power’s project pipeline and operating scale, which at the end of June had 16 operating nuclear reactors with total capacity of 17.1 GW, and was managing 12 reactors under construction totalling 14.65 GW.

The company had a 59.8 per cent share in all of mainland China’s operating nuclear power plants, and 49.7 per cent of reactors under construction.

The three assets to be acquired have a combined equity value of 10.25 billion yuan at the end of 2015.

Guangxi Fangchenggang had a net loss of 26.4 million yuan last year and a loss of 26 million yuan in 2014. It started producing power early this year and realised 607.9 million yuan of revenue in this year’s first quarter.

CGN Engineering recorded a net profit of 910.9 million yuan last year, 10.5 per cent higher than 2014.

Although CGN Power’s operating scale is expected to grow substantially in the next few years, analysts noted profitability will be squeezed by falling plant utilisation rates as overcapacity of China’s power industry is increasingly affecting the nuclear power segment that has historically enjoyed high plant utilisation.

“Due to China’s surplus electricity supply, we have already seen temporary outages at the Hongyanhe and Ningde nuclear power plants, and believe these outages may gradually spread to other parts of China,” said Dennis Ip, Daiwa Capital Markets head of Hong Kong and China utilities, renewables and environment research in a report.

Industry regulator, the National Energy Administration, is also consulting the industry on potential reforms on tariffs setting, which could subject nuclear plants to price and sales volume competition for a certain portion of their output for the first time. All nuclear tariffs are currently set by the state.

CGN Power is forecast to see net profit rise to 9.5 billion yuan in 2018 from 6.6 billion yuan last year, according to the average estimate of 22 analysts polled by Thomson Reuters.

The proposed acquisitions will be subject to approval by independent shareholders.

CGN Power shares have fallen 15.4 per cent year-to-date, underperforming the benchmark index’s 7.2 per cent gain.