July 4,2006 GDPower Development (600795.SS) Gao Hua Securities Investment Research 1 July 4,2006 COMPANYUPDATE GDPower Development (600795.SS) In-line tariff increases; raising price target What's changed GDPower Development (Guodian) has announced tariff increases for its power stations, effective June 30. The increases (inclusive of VAT) average about Rmb0.01/kWh – they range from Rmb0.003/kWh to Rmb0.023/kWh for coal-fired plants and nothing for Guodian’s hydro power plants. Implications Although the average increase was in-line with our expectation and higher than some of its peers such as (Datang, Rmb0.007/kWh), it seems lower than the market’s expectation as Guodian has a low basis in tariffs. We maintain our Neutral recommendation on the stock. We have adjusted earnings slightly (-1% for both 2006E and 2007E) to incorporate the actual increases and fine- tune other assumptions. Valuation We are also rolling forward our 12 month DCF-based share price target, moving to 2007 from 2006 data and our price target increases to Rmb7.70 from Rmb7.00 as a result. Our target price incorporates a premium associated with the pending non- tradable share reform (which we expect to be announced in July). The new target is equivalent to a 2007EP/E of 17x, compared to a peer group average of 12x. Key risks Higher-than-expected plant utilization rates or lower-than-assumed coal prices. Gao Hua Securities acknowledges the role of Stephen Oldfield and Christopher Wong of Goldman Sachs in the preparation of this note. INVESTMENTLISTMEMBERSHIP Neutral Coverage View: Neutral China: Power Growth Returns * Multiple Volatility Volatility Multiple Returns * Growth Investment Profile: GDPower Development Low High Percentile 20th 40th 60th 80th 100th * Returns = Return on Capital For a complete description of the investment profile measures please refer to the disclosure section of this document. 600795.SS Asia Pacific Utilities Peer Group Average Key data Current Price (Rmb) 7.86 Price target (Rmb) 7.70 Market cap (Rmb mn / US$ mn) 17,837.8 / 2,229.0 Foreign ownership (%) -- 12/0512/06E 12/07E 12/08E EPS (Rmb) New 0.410.420.440.48 EPS revision (%) 0.0 (0.8) (1.1) 18.0 EPS growth (%) 10.53.54.98.0 EPS (dil) (Rmb) New 0.370.390.410.48 P/E (X) 19.218.517.716.4 P/B (X) 2.42.22.01.8 EV/EBITDA (X) 9.011.212.611.2 Dividend yield (%) 1.01.11.11.2 ROE (%) 13.212.311.711.5 Price performance chart 5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5 9.0 Jul-05 Oct-05 Jan-06 Apr-06 1,000 1,100 1,200 1,300 1,400 1,500 1,600 1,700 1,800 GDPower Development (L) Shanghai SEAShare Index (R) Share price performance (%) 3 month 6 month 12 month Absolute 30.322.022.2 Rel. to Shanghai SEAShare Index 2.8 (14.3) (24.0) Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 7/04/2006 close. Franklin Chow, CFA +86(10)6535-3012 | firstname.lastname@example.org Beijing Gao Hua Securities Company Limited Qi Zhou +86(10)6535-3054 | email@example.com Beijing Gao Hua Securities Company Limited Beijing Gao Hua Securities Company Limited and its affiliates do and seek to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For analyst certification, see the text preceding the disclosures. For other important disclosures, contact your investment representative. Beijing Gao Hua Securities Company Limited Investment Research July 4,2006 GDPower Development (600795.SS) Gao Hua Securities Investment Research 2 GDPower Development: Summary financials Profit model (Rmb mn) 12/0512/06E 12/07E 12/08EBalance sheet (Rmb mn) 12/0512/06E 12/07E 12/08E Total revenue 11,045.211,940.412,429.715,135.2 Cash & equivalents 1,164.7847.5721.6793.7 Cost of goods sold (6,815.4) (7,342.0) (7,591.2) (9,266.5) Accounts receivable 1,386.91,289.51,342.41,634.6 SG&A (438.4) (488.0) (518.3) (654.1) Inventory 898.9762.3788.2962.1 R&D -- -- -- -- Other current assets 482.5482.5482.5482.5 Other operating profit/(expense) (132.0) (140.0) (145.7) (177.4) Total current assets 3,933.03,381.83,334.53,872.9 EBITDA 3,659.33,970.44,174.65,037.3 Net PP&E 29,253.537,395.547,047.551,864.5 Depreciation & amortization (1,578.7) (1,820.0) (1,850.6) (2,420.8) Net intangibles 128.5118.8109.099.3 EBIT 2,080.62,150.42,324.02,616.5 Total investments 2,736.73,592.04,078.24,570.5 Interest income 220.127.116.11.9 Other long-term assets 1.50.00.00.0 Interest expense (661.9) (760.5) (821.1) (996.0) Total assets 36,053.344,488.154,569.360,407.1 Income/(loss) from uncons. subs.274.4244.6282.9422.7 Others (5.9) 20.7 (10.6) (61.7) Accounts payable 1,750.61,878.61,942.42,371.0 Pretax profits 1,703.31,664.31,782.31,988.5 Short-term loans 4,745.26,918.39,476.911,214.4 Income tax (180.1) (191.7) (226.0) (261.6) Other current liabilities 2,494.12,444.92,484.42,618.8 Minorities (593.5) (510.2) (546.5) (636.7) Total current liabilities 9,243.911,241.813,903.616,204.2 Long-term debt 15,590.020,444.626,160.728,102.4 Net income pre-preferred 929.7962.41,009.81,090.2 Other long-term liabilities 0.00.00.00.0 Preferred dividends 0.00.00.00.0 Total long-term liabilities 15,590.020,444.626,160.728,102.4 Net income (pre-exceptionals) 929.7962.41,009.81,090.2 Total liabilities 24,833.831,686.440,064.344,306.6 Post tax exceptionals 0.00.00.00.0 Net income 929.7962.41,009.81,090.2 Common stock & premium 4,054.34,054.34,054.34,054.3 Other common equity 3,382.94,163.74,985.65,878.5 EPS (basic, pre-except) (Rmb) 0.410.420.440.48 Total common equity 7,437.18,218.09,039.89,932.8 EPS (basic, post-except) (Rmb) 0.410.420.440.48 Minority interest 3,782.34,583.75,465.26,167.7 EPS (diluted, post-except) (Rmb) 0.370.390.410.48 DPS (Rmb) 0.080.080.090.09 Total liabilities & equity 36,053.344,488.154,569.360,407.1 Dividend payout ratio (%) 21.418.104.22.168 Free cash flow yield (%) (23.9) (42.3) (50.9) (24.0) BVPS (Rmb) 3.283.623.984.38 Growth & margins (%) 12/0512/06E 12/07E 12/08ERatios 12/0512/06E 12/07E 12/08E Sales growth 22.214.171.124.8 ROE (%) 13.212.311.711.5 EBITDA growth 20.08.55.120.7 ROA (%) 2.82.42.01.9 EBIT growth 126.96.36.199.6 ROACE (%) 188.8.131.52.9 Net income growth 184.108.40.206.0 Inventory days 37.941.337.334.5 EPS growth 10.53.54.98.0 Receivables days 39.440.938.635.9 Gross margin 38.338.538.938.8 Payable days 93.490.291.985.0 EBITDA margin 33.133.333.633.3 Net debt/equity (%) NMNMNMNM EBIT margin 18.818.018.717.3 Interest cover - EBIT (X) 220.127.116.11.6 Cash flow statement (Rmb mn) 12/0512/06E 12/07E 12/08EValuation 12/0512/06E 12/07E 12/08E Net income pre-preferred dividends 929.7962.41,009.81,090.2 P/E basic (X) 19.218.517.716.4 D&A add-back 1,578.71,820.01,850.62,420.8 P/B (X) 2.42.22.01.8 Minorities interests add-back 593.5510.2546.5636.7 EV/EBITDA (X) 9.011.212.611.2 Net inc/(dec) working capital (896.7) 58.824.596.9 Div yield (%) 1.01.11.11.2 Other operating cash flow 1,020.5 (844.8) (1,413.7) (1,803.3) Cash flow from operations 3,225.72,506.72,017.72,441.3 Additional metrics 12/0512/06E 12/07E 12/08E Capital expenditures (5,992.0) (9,402.7) (10,414.3) (5,899.6) Volume output -- -- -- -- Acquisitions 0.00.00.00.0 Demand growth (%) -- -- -- -- Divestitures 29.80.00.00.0 Total capacity (MW) 8,359.58,559.59,459.511,559.5 Others 129.5 (558.6) (151.1) (17.4) Attributable capacity (MW) 6,583.76,816.77,781.79,104.7 Cash flow from investments (5,832.7) (9,961.3) (10,565.4) (5,917.0) Peak demand (MW) -- -- -- -- Utilization rate (%) 6,954.66,487.76,273.56,171.1 Dividends paid (common & pref) (1,607.0) (181.6) (187.9) (197.2) Reserve margin (%) -- -- -- -- Inc/(dec) in debt 19,031.67,027.78,274.73,679.2 Weighted average tariffs ($k/Wh) 0.20.20.20.2 Common stock issuance (repurchase) 0.00.00.00.0 Unit fuel costs -- -- -- -- Other financing cash flows (16,024.7) 291.2335.065.8 Cash flow from financing 1,399.97,137.38,421.73,547.9 Total cash flow (1,207.1) (317.2) (125.9) 72.2 Note: Last actual year may include reported and estimated data. Source: Company data, Goldman Sachs Research estimates. Analyst Contributors Franklin Chow, CFA firstname.lastname@example.org Qi Zhou email@example.com July 4,2006 GDPower Development (600795.SS) Gao Hua Securities Investment Research 3 RegAC I, Franklin Chow, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. Investment profile The Goldman Sachs Investment Profile provides investment context for a security by comparing key attributes of that security to its peer group and market. The four key attributes depicted are: growth, returns, multiple and volatility. Growth, returns and multiple are indexed based on composites of several methodologies to determine the stocks percentile ranking within the region's coverage universe. The precise calculation of each metric may vary depending on the fiscal year, industry and region but the standard approach is as follows: Growth is a composite of next year's estimate over current year's estimate, e.g. EPS, EBITDA, Revenue. Return is a year one prospective aggregate of various return on capital measures, e.g. CROCI, ROACE, and ROE. Multiple is a composite of one-year forward valuation ratios, e.g. P/E, dividend yield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book. Volatility is measured as 30-day historical volatility, annualized and adjusted for dividends. Quantum Quantum is Goldman Sachs proprietary database providing access to detailed financial statement histories, forecasts and ratios. It can be used for in- depth analysis of a single company, or to make comparisons between companies in different sectors and markets. Disclosures Coverage group(s) of stocks by primary analyst(s) Franklin Chow, CFA: China Utilities. China Utilities: Beijing Capital, GDPower Development, Guangdong Electric, Guangdong Investment, Shanghai Municipal Raw Water, Shenergy, Tianjin Capital. Company-specific regulatory disclosures The following disclosures relate to relationships between Goldman Sachs Gao Hua Securities Company Limited ("Goldman Sachs Gao Hua") and companies covered by the Investment Research Division of Beijing Gao Hua Securities Company Limited ("Gao Hua Securities") and referred to in this research. There are no company-specific disclosures for: GDPower Development (Rmb7.86) Ratings, coverage groups and views and related definitions Buy, Neutral, Sell -Analysts recommend stocks as Buys or Sells for inclusion on various regional Investment Lists. Being assigned a Buy or Sell on an Investment List is determined by a stock's return potential relative to its coverage group as described below. Any stock not assigned as a Buy or a Sell on an Investment List is deemed Neutral. Each regional Investment Review Committee manages various regional Investment Lists to a global guideline of 25-35% of stocks as Buy and 10-15% of stocks as Sell; however, the distribution of Buys and Sells in any particular coverage group may vary as determined by the regional Investment Review Committee. Return potential represents the price differential between the current share price and the price target expected during the time horizon associated with the price target. Price targets are required for all covered stocks. The return potential, price target and associated time horizon are stated in each report adding or reiterating an Investment List membership. Coverage groups and views: A list of all stocks in each coverage group is available by primary analyst, stock and coverage group at . The analyst assigns one of the following coverage views which represents the analyst's investment outlook on the coverage group relative to the group's historical fundamentals and/or valuation. Attractive (A). The investment outlook over the following 12 months is favorable relative to the coverage group's historical fundamentals and/or valuation. Neutral (N). The investment outlook over the following 12 months is neutral relative to the coverage group's historical fundamentals and/or valuation. Cautious (C). The investment outlook over the following 12 months is unfavorable relative to the coverage group's historical fundamentals and/or valuation. Not Rated (NR). The investment rating and target price, if any, have been removed pursuant to Gao Hua Securities policy when Goldman Sachs Gao Hua is acting in an advisory capacity in a merger or strategic transaction involving this company and in certain other circumstances. Rating Suspended (RS). We have suspended the investment rating and price target, if any, for this stock, because there is not a sufficient fundamental basis for determining an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and should July 4,2006 GDPower Development (600795.SS) Gao Hua Securities Investment Research 4 not be relied upon. Coverage Suspended (CS). We have suspended coverage of this company. Not Covered (NC). We do not cover this company. Not Available or Not Applicable (NA). The information is not available for display or is not applicable. Not Meaningful (NM). The information is not meaningful and is therefore excluded. 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