Beneficiary of investment in the power segment
■ WillFar [688100.CH], Wasion Holding’s (Wasion) A-share listed subsidiary, performed well recently due to a rerating of its IoT potential and power grid investment. We don’t believe that the value of WillFar really reflects Wasion’s current valuation.
■ We maintain the view that Wasion is a beneficiary of recent polices on the Internet of Energy, energy storage, carbon emissions reduction and new infrastructure.
■ Maintain ADD with a higher target price of HK$3.81, mainly because of the adoption of a higher target P/E multiple (from 11x to 12x) as the sector being rerated.
Investment in power transmission and distribution
State Grid Corp officially announced the “Cross-province electricity spot trading standard (trial)” on 22 Nov 2021. The new standard replaces the “Cross-regional surplus renewable energy power spot market standard (trial)”, released in 2017. The new standard extends the trading territorial scope and power categories. The new standard further improves the electricity market system and facilitates interprovincial energy trading and allocation. The new standard is expected to raise both demand and prices of renewable energy power. On 24 Nov at a Central Comprehensively Deepening Reforms Commission meeting, President Xi Jinping called for the rules of electricity market operations and the market economy to be followed, for the overall planning of the electricity market to be improved, and for electricity resources to be shared and better allocated in broader areas across the country. We expect electricity market reforms to be accelerated and the energy network build-up to be pushed forward. Beneficiaries should include power grids, renewable energy, power transmission and distribution, and energy information-related names, including Wasion and WillFar.
Based on our understanding, owing to a rerating of its potential from IoT and the digitalization of power grids in China, WillFar closed at Rmb33.50, with a market cap of Rmb16.8bn. Wasion holds a 58.5% stake in Willfar, valued at HK$12.2bn, based on WillFar’s current market cap (vs. Wasion’s current market cap of about HK$3.0bn). It seems that the market is giving Wasion’s AMI and ADO business a negative value, which we think is unjustified. The discount has widened again, after WillFar’s recent outperformance. Wasion’s current valuation looks attractive, especially since it has a decent dividend yield of about 7%. Wasion Holdings still consolidates WillFar’s results and share growth from WillFar’s IoT business. We also expect steady growth in the Company’s AMI and ADO business.
Adjustment to target price
We maintain our forecasts for 21F–23F, as we believe that Wasion will capture growth from both the China and overseas markets. We also believe that that the weak performance in 2H19 and 2020 is behind Wasion and that yoy growth should pick up in the coming years. Based on our understanding, the Company’s current backlog will be higher than the figure of Rmb3.4bn disclosed in Aug 21 which should support growth in the near term. We raised our target price from HK$3.44 to HK$3.81, mainly because of the adoption of a higher target P/E multiple (from 11x to 12x) because the sector is being rerated due to the potential from the installation of EV charging equipment and power transmission & distribution. Our
target P/E multiple is in line with the historical range and lower than that of its peers, including Nari [600406.CH], Xuji [000400.CH], Sieyaun [002028.CH] and WillFar.