CH ENERGY ENG (3996.HK) Newly signed contracts keep growing December 17, 2019 361

PSR Recommendation: ACCUMULATE Status: Downgraded
Target Price: HKDHKD1.05

Company update
Since November 2019, the company and its subsidiaries have signed or awarded a number of new projects, including four domestic projects involving an investment of approximately RMB17.2 billion; eight overseas projects mainly focus on power station projects. Major projects include: 1) China Energy Engineering Group Guangdong Power Engineering Co., Ltd., a subsidiary of China Energy Engineering Group Southern Construction & Investment Co., Ltd. has entered into an EPC contract for the Baltic Sea 324.8MW Wind Farm Project in Poland. The project is located in Słupsk, Poland near the Baltic Sea, and includes 5 specific projects, Its main work comprises power station EPC construction, which includes designing services, manufacturing, supervising, testing, equipment supplying, whole factory constructing, installing, debugging, training, spare parts within the warranty period, consumables and services, etc. The contract amount of the project is approximately EUR568 million. 2) The project is located in Umm Al Quwain, United Arab Emirates. Its main work comprises the construction of a seawater desalination plant with a daily production capacity of 150MIG (approximately 682,000 tonnes/day), including the design, procurement, construction, debugging and testing of seawater intake and drainage ancillary facilities and water storage tanks. The total contract amount of the project is approximately USD625 million, of which the contract amount of Gezhouba International Co. is approximately USD369.5 million. The contract term is 33 months, commencing from the date of construction. 3) The project company is jointly established by the government-funded representative and the social investor, and is responsible for the unified operation. The total investment of the project is approximately RMB5.732 billion, and the term of cooperation is 30 years, including 4 years of construction period and 26 years of operation period. 4) a subsidiary and cooperating parties has entered into an EPC contract for the 1000MW Oil and Gas Combined Cycle Power Station Project in Maysan, Iraq.The project is situated in Maysan Governorate, Iraq. Its main works comprise the design, procurement, and construction of the 1000MW Oil and Gas Power Station. The contract amount of the Project is approximately USD1,200 million. The contract term is 36 months. According to the National Bureau of Statistics, the cumulative annual growth rate of China’s fixed asset investment was 5.2% in October 2019, maintaining moderate growth. However, the current downward pressure on the economy is increasing, government is expected to continue introducing relevant policies to increase the infrastructure investment to drag the bottom of the economy. In addition, the monetary policy remains stable and loose, which will benefit the development of the infrastructure sector. We expect that the new contract value of the company will continue to grow steadily.

About the author

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Leon Duan
Investment Analyst

Bachelor Degree in Shandong University of Science, and Master Degrees in Chinese University of Hong Kong Faculty of Science and City University of Hong Kong College of Business. Currently cover Pharmaceuticals and Environmental Protection sectors, good at combining analysis with industry prospects and company fundamentals.

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