Accelerating to c.60% of 10GW target

  • SCI is acquiring a 35% interest in SDIC New Energy, which has 1,878MW of wind and solar assets in China, for c.S$320m.
  • This will bring SCI’s total gross renewable energy capacity to 6,039MW (wind 4,567MW, solar 1,352MW, energy storage 120MW), including WIP assets.
  • We estimate this latest acquisition will contribute c.S$25m-35m in earnings in FY23F, implying acquisition valuations of 10-11x P/E.
  • Maintain Add at S$2.51 TP, based on 15x CY22F P/E (Asian peers’ average).

SCI to acquire another 1.9GW of wind and solar assets in China

● SCI signed an agreement with State Development Investment Corporate Group (SDIC) to take over its 35% interest in SDIC New Energy for Rmb1.5bn (c.S$320m) by 1H22F. SDIC Power holds the remaining 65%.
● SDIC New Energy’s portfolio consists of 148MW of solar and 1,730MW of wind assets. Commercial operational dates (COD) range from 2009-2020.
● Recall that SCI announced a separate acquisition with CGN Capital Partners (CGN) for a 98% interest in 658MW of wind and solar assets in China, to complete by 1H22F.
● On completion of both acquisitions, SCI will have a total of 1,352MW of solar assets (including 749MW under development) and 4,567MW of wind assets.

Latest acquisition to add c.S$25m-35m to FY23F net profit

● SDIC reported a c.S$75m net profit in 1H21, above its FY20 net profit of c.S$74m. This is due to more assets being COD-ready in 4Q20. SDIC’s current tariffs are Rmb0.43-0.53/kwh for wind and Rmb0.66-1.02/kwh. We expect SDIC New Energy’s assets to add c.S$30m-35m to SCI’s FY23F net profit, net of interest costs, implying 10-11x P/E, in line with Chinese renewable peers of 10-12x P/E.
● The c.S$320m of consideration will be funded through internal cash resources and external borrowings. SCI’s net gearing as of 1H21 was c.1.8x.
● Re-rating catalysts for SCI: decarbonisation of conventional energy assets. Downside risks: unfavorable regulatory changes.

The CGN and SDIC acquisitions are fundamentally different

● While both portfolios of assets are situated in China and comprise wind and solar assets, both acquisitions differ on 3 main grounds:
● Location: CGN’s assets are based in Eastern China, while SDIC’s assets operate in Western China (Fig 1). Western China has more arid regions that provide longer sunny days and reliable wind.
● Average asset life: CGN’s assets are younger (Fig 1), indicating higher asset quality.
● Motivations: CGN offers SCI opportunities to learn about technical know-hows and share best practices, while SDIC helps SCI to grow with large SOE partners in China.