Guangdong Energy Group Co., Ltd.

In addition, GEG's concentration of operations in Guangdong means greater exposure to local power supply dynamics as well as coordinated regulatory moves, such as in tariff regulations. We expect a structural long-term decline in coal-power utilization in Guangdong. Nuclear units and imported hydropower coming on stream will likely further displace local coal-power. That could hurt GEG, a coal-power centric local IPP (coal power makes up close to 70% of GEG's controlled capacity over the next two years). The stable outlook on GEG reflects our expectation that the company will maintain its stable operations and financial standing amid moderately softening fuel costs over the next 24 months. GEG's ratio of FFO to debt should maintain adequate headroom for the rating given

...Guangdong Energy Group (GEG) will weather the impact from COVID-19 over 2020-2021. This is because softening fuel costs could offset lackluster power demand growth, sustaining GEG's profit margins. We expect stable EBITDA at Chinese renminbi (RMB) 14.5 billion-RMB15 billion in 2020 followed by a moderate growth to RMB16 billion-RMB17 billion in 2021 on capacity addition. We also anticipate declines in fuel cost will be moderate (5%-10%), not deep enough to warrant negative intervention in base tariffs or fierce market-bidding competition. We also note that GEG's earnings held up well in the last economic downturn in 2015 despite the fact that power grew just 1.5% and the company's revenue declined by 8%. We expect GEG to sustain a leading position in Guangdong's power market. Guangdong Energy Group Co. Ltd. (GEG), through its subsidiaries, accounts for 24% of Guangdong's installed power capacity, 24% of the province's generation, and caters to just under 20% of power demand. The company...

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