Asia Power Ltd

Summary
Asia Power offers stable returns and currently trades at a PE of between 4 and 5.

Background
Asia Power is principally involved in the ownership, management and operation of power plants in China. It was incorporated in Singapore in March 1997 and later converted to a public company in October 1999.

Asia Power has been developing and focusing on the following three core businesses:

* Power Generation
o Coal-fired Power Plant
o Peaking Power Plant
o Hydro Power Plant
* Power-related Technology
* Power Consulting & Investment Holding

The strategy is to invest in low-risk, profitable power projects in China. In particular, it comprises taking equity stakes in coal-fired combined heat-and-power plants, highly efficient combined-cycle peaking power plants, hydropower stations,computerised power automation, protection systems and power auxiliary equipment manufacturers.

The power business offers stable cash flows, and Asia Power has gradually brought more capacity on line over the last several years, doubling its revenues from $60.7M in 2003 to $129.6M in 2007 ($74.4M in H1 08).

EPS grew from 0.76 cents in 2003 to 3.38 cents in 2007 (EPS was at 1.83 cents for H1 08), and Net Tangible Asset Value stood at 23.49 cents/share as at H1 08.

Ratios as at H1 08
Current Ratio = 1.27
Acid test Ratio = 1.19
Cash Asset Ratio = 0.61
ROE (based on FY2007) = 15.4%

EPS per share in 2007 stood at 3.38 cents and at H1 08 at 1.83 cents.
Based on Asia Power's share price of $0.15 as at 9 Oct 08, return on share price stands at 22.5% against 2007 earnings.

This translates to a historical PE of 4.447.

Dividend policy has been fairly consistent, with dividends growing over the years along with profitability

Year 2004 2005 2006* 2007
EPS 1.70 2.90 5.62 3.38
Div/share 0.70 0.90 1.10 1.10

* Extraordinary gain from sale of plant

At a projected 2008 dividend of 1.1 cents, yield currently stands at 7.3% at the current share price of 15 cents

Discount to market

As at 30 June 08, Net Tangible Assets (NTA) stood at 23.49 cents. This essentially means that at 15 cents, the share price discount to market is 36%. Unlike my earlier article on AEI, this includes fixed assets given the nature of the utilities industry (ie high levels of capital required).

Other information
Asia Power is expected to shut down its peaking power plants by end 2008 in compliance with Chinese Government directives. The impact is expected to be marginal due to the nature of such plants (ie short term use during peak periods only).

Largest revenue growth in 2008 was from AP's coal fired power plant (largest capacity). Unlike other coal fired plants however, AP the type of bitumen coal used by AP is less subject to fluctuations in pricing. This is however still subject to supplier risks.

AP's hydroelectric power stations continued to yield the best margins and AP's strategy to move into/acquire/build more hydroelectric plants over the years have paid off.