1、 Disclosures&Disclaimer This report must be read with the disclosures and the analyst certifications in the Disclosure appendix,and with the Disclaimer,which forms part of it.Issuer of report:HSBC Securities and Capital Markets(India)Private Limited View HSBC Global Research at:https:/ THIS CONTENT
2、MAY NOT BE DISTRIBUTED TO THE PEOPLES REPUBLIC OF CHINA(THE PRC)(EXCLUDING SPECIAL ADMINISTRATIVE REGIONS OF HONG KONG AND MACAO)Solar and Integrated Power are the best placed themes on the HSBC Climate Radar in Q3 2019 Solar offers inexpensive valuations and robust 12M consensus EPS growth of 24%re
3、lative to climate stocks Integrated Power is supported by strong earnings momentum and improving consensus outlook We use our proprietary HSBC Climate Solutions Database(HCSD)and apply the quantitative framework of HSBC Climate Radar to identify the most attractive climate themes within the climate
4、change space.We screen ten stocks each(page 10,Figure 14)from the top-two best-placed themes on our HSBC Climate Radar.Solar has remained in the most favourable top-left quadrant of our climate radar for two consecutive quarters.The themes long-term valuation metrics remain at a discount relative to
5、 historical levels and the consensus outlook continues to improve from last quarter.The consensus 12m forward EPS growth forecast for Solar is 24%,which is the highest earnings growth estimate across all climate themes in HCSD.Also,solar exhibits strong price momentum,outperforming global climate st
6、ocks by c12%ytd.Integrated Power is also placed in the most attractive top-left quadrant of the Climate Radar.It is among the top-ranked climate themes on the measure of short-term dynamics,particularly relative earnings revisions ratio,which is c10 percentage points higher than the earnings revisio
7、ns ratio for global climate stocks.Also,the themes 12-month forward earnings growth forecast relative to global climate stocks,although still negative,has improved sharply over the past few months.Please note that access to the HSBC Climate Solutions Database is available on request.For more details
8、 regarding the database,please refer to HSBC Climate Solutions Database-to generate Climate alpha Amit Shrivastava*Equity Strategist;Climate Database Lead HSBC Securities and Capital Markets(India)Private Limited amit1.shrivastavahsbc.co.in+91 80 4555 2759 Wai-Shin Chan,CFA Head,Climate Change Centr
9、e;Co-Head,ESG Research The Hongkong and Shanghai Banking Corporation Limited .hk+852 2822 4870 Ashim Paun Co-Head,ESG Research;Climate Change Strategist HSBC Bank plc +44 20 7992 3591 Amitkumar Vyawahare*Associate Bangalore *Employed by a non-US affiliate of HSBC Securities(USA)Inc,and is not regist
10、ered/qualified pursuant to FINRA regulations 28 August 2019 HSBC Climate Radar Equity Strategy&Climate Change Global The HSBC Climate Radar themes view in Q3 2019 Source:MSCI,HSBC,Refinitiv Datastream,IBES.Horizontal axis signifies contrarian signal;Vertical axis measures change in the short-term dy
11、namics.For details regarding access to the HSBC Climate Solutions Database,please contact HSBC Global Research.Top conviction themesMost attractiveSolarIntegrated PowerLeast attractiveBio-EnergyAgriculturePessimismOptimismPositive DynamicsNegative DynamicsBio-EnergyIntegrated PowerSolarAgricultureTo
12、p conviction themes:Solar and Integrated Power Equity Strategy&Climate Change Global 28 August 2019 2 Climate stocks offer superior earnings growth to global equities Year-to-date in 2019,global climate stocks have outperformed global equities by over 2%on an equal weighted basis.With a return of 14
13、.7%this year,climate stocks in the HSBC Climate Solutions Database have exceeded the 12.6%return posted by global equities(MSCI All Country World Index)over the same period(equal weighted,as of end-July 2019).More importantly,the earnings growth outlook for climate stocks is also higher than global
14、equities.Consensus expects climate earnings to grow 9.3%over the next 12 months.Although this consensus estimate has fallen over the last three months,it still remains higher than the 7.6%consensus earnings growth estimate for global equities.1.Despite a fall over the last quarter,the consensus EPS
15、growth forecast for climate stocks is higher than the consensus EPS growth forecast for global equities Source:IBES,Refinitiv Datastream,HSBC Climate stocks valuation is low relative to history Also,the long-term valuation for global climate stocks has de-rated in 2019.The trend-adjusted price to ea
16、rnings(TAPE)multiple for global climate stocks has fallen more than 4%this year and its current value(13.7x)is close to its lowest value in almost seven years.Moreover,the current reading of TAPE for climate stocks is 8%below the long-term average,indicating there is scope for it to expand from curr
17、ent levels.-90-60-300306090-20-15-10-5051015200507091113151719y-o-y return(%)12m forward EPS growth(%)Global Climate stocks:12m forward EPS growth(%)Global Climate stocks:y-o-y total return*(%),rhs 2.Trend-adjusted PE multiple for climate stocks is 8%below its long-term average 3.Low carbon and ener
18、gy efficiency drive climate earnings growth Source:IBES,Refinitiv Datastream,HSBC Source:IBES,Refinitiv Datastream,HSBC LCEP=Low Carbon Energy Production;EEEM=Energy Efficiency&Energy Management and ELUM=Environment and Land Use Management 612182407 08 09 10 11 12 13 14 15 16 17 18 19trend-adjusted
19、PE multiple(x)Global climate stocksaverage-40481216Dec-17Dec-18July-1912m forward EPS growth(%)EEEMELUMLCEP 3 Equity Strategy&Climate Change Global 28 August 2019 Looking across sectors,robust earnings growth for global climate stocks is mainly driven by Low Carbon Energy Production(LCEP)and Energy
20、Efficiency and Energy Management sectors(EEEM).Consensus 12-month forward earnings growth forecasts for LCEP and EEEM are 9%and 16%respectively.In contrast,the earnings growth estimate for Environment and Land Use Management sector is marginally negative at-0.5%.HSBC Climate Solutions Database-An in
21、vestment opportunity in the climate space Climate Radar utilises the HSBC Climate Solutions Database to screen for companies used in our analysis.The HSBC Climate Solutions Database is our proprietary database comprising a universe of global companies that defines investment opportunity set within t
22、he climate change space.The Database is updated annually and includes companies with exposure to 21 climate themes.Access to the database is available on request.For more information please contact HSBC Global Research or the authors of this report.Also,please refer to HSBC Climate Solutions Databas
23、e-to generate Climate alpha,for further details.Equity Strategy&Climate Change Global 28 August 2019 4 HSBC Climate Radar Our top conviction themes The HSBC Climate Radar is a quantitative tool-kit that enables identification of the most attractive investment themes from the HSBC Climate Solutions D
24、atabase1 a database of global companies with varying levels of exposure to climate-related businesses.Based on our objective framework for analysing the prevailing short-term dynamics and long-term investor optimism,we highlight our best conviction ideas across the climate themes.Most attractive the
25、mes in Q3 2019 Solar Integrated Power Please note that Diversified Renewables,Energy Storage and Water are also placed in the most favourable top-left quadrant.However,based on the aggregate ranking of two measures of long-term investor sentiment and short-term dynamics,they are ranked lower than So
26、lar and Integrated Power.Less attractive themes in Q3 2019 Bio-Energy Agriculture _ 1 For more details of HSBC Climate Solutions Database,please see our report entitled HSBC Climate Solutions Framework-A climate change solutions tool-kit,12 September 2016.For details regarding access to the HSBC Cli
27、mate Solutions Database,please contact HSBC Global Research.2 For a detailed description of the Climate Radar and the underlying variables used to create it,please see section HSBC Climate Radar An objective framework of this note.4.The HSBC Climate Radar2 Source:MSCI,HSBC,Refinitiv Datastream,IBES
28、Horizontal axis signifies contrarian signal;Vertical axis measures change in the short-term dynamics.HGM=Hydro/Geothermal/Marine,CIC=Climate Investment companies Arrows denote three month change in the position of most attractive climate themes highlighted in the current(Q3 2019)and the previous qua
29、rter(Q2 2019),on the HSBC Climate Radar.Negative DynamicsPessimismOptimismPositive DynamicsNegative DynamicsBio-EnergyDiversified RenewablesHGMIntegrated PowerNuclearSolarWindBuildings EfficiencyEnergy StorageIndustrial EfficiencyTransport EfficiencyAgricultureForestryWasteWaterCIC 5 Equity Strategy
30、&Climate Change Global 28 August 2019 What has changed since the last quarter(Q2 2019)?In our report last quarter(Q2 2019)HSBC Climate Radar-Top conviction themes:Solar and Wind,21 May 2019,we highlighted Solar and Wind as the most attractive climate themes in the climate change universe.In this Q3
31、2019 update of our quantitative framework of HSBC Climate Radar,Solar has retained its position in the most favourable top-left quadrant(see Figure 5)of the HSBC Climate Radar.Also,the themes relative positioning on the Radar in the current quarter has remained the same when compared to the previous
32、 quarter.It is however worth mentioning that since our last update of the HSBC Climate Radar,the Solar theme has outperformed global climate stocks by 4.3%.Wind,which was the second most attractive climate theme in Q2 2019,has registered a fall in its ranking on both the measures of long-term invest
33、or sentiment and short-term dynamics.Consequently,it has now moved to just below the horizontal axis in the bottom-right quadrant.The fall in Winds short-term dynamics ranking can be attributed to a decline in its ranking on the measure of relative earnings momentum and a drop in consensus earnings
34、growth forecast which has fallen from-10%last quarter to-17%currently.Also,the theme has registered a fall in its ranking on long-term valuation metrics,mainly due to a rise in its price-to-book multiple since the last quarter.Solar most attractive theme 1 5.Long-term valuation multiples for Solar a
35、re low and rising 6.and earnings momentum continues to rise in Q3 2019 Source:MSCI,HSBC,Refinitiv Datastream*relative to screen of targeted stocks in the HSBC Climate Solutions Database Source:MSCI,I/B/E/S,HSBC,Refinitiv Datastream Getting sunnier Solar has remained in the most favourable top-left q
36、uadrant of the Climate Radar for a second(consecutive)quarter now(see HSBC Climate Radar-Top conviction themes:Solar and Wind,21 May 2019).Since our last update of HSBC Climate Radar,the Solar theme has outperformed global climate stocks by 4.3%;also,year-to-date,the theme has outperformed global cl
37、imate stocks by 12%.The theme is the top ranked theme on the measure of short-term earnings and price dynamics,and it is the second ranked climate theme on the measure of long-term investor sentiment.The themes long-term valuation metrics remain at a discount relative to historical levels.The trend-
38、adjusted price-to-earnings(TAPE)multiple and price-to-book ratio for Solar are 20%and 16%below their respective long-term average values,indicating a large upside potential of 24%and 18%respectively from current levels.Likewise,the Recommendation Consensus Score(RCS)for Solar relative to global clim
39、ate stocks is now at par with its five-year average value.This indicates that sell-side analysts aggregate relative rating on Solar stocks is close to neutral.4060801001201401601801112131415161718relative valuation multiplesTAPE relative over 5 year averagePB relative over 5 year average-30-20-10010
40、203013141516171819relative earnings revision ratio3m earnings momentumSolar theme has outperformed global climate stocks by 4.3%since last quarter Equity Strategy&Climate Change Global 28 August 2019 6 Looking at short-term dynamics,the consensus outlook on the Solar theme continues to improve since
41、 last quarter.After turning positive during the last quarter,the three-month earnings revisions ratio for Solar relative to global climate stocks continued to move up in Q3 2019 and currently it is at its highest level in more than year.Consensus higher proportion of earnings upgrades reflect its EP
42、S growth projections for Solar.Consensus now expects Solar earnings to grow 24%over next 12 months relative to global climate stocks,which is the highest earnings growth estimate across all climate themes in the HSBC Climate Solutions Database.The HSBC Climate Solutions Framework identifies Solar co
43、mpanies as those that produce crystalline and non-crystalline silicon and related semi-conducting materials for use in the production of PV or solar thermal cells.In addition to solar electricity generators,the framework also screens for companies which design,develop or install solar power-related
44、technologies such as PV,concentrating solar panels(CSP)and thin film,as well as including companies that produce solar glass and ingots etc.For more insight on Solar theme please see Climate Alpha HSBC Climate Solutions Database:Solar deep dive,4 April 2019.Falling costs drive positive demand outloo
45、k for Solar In HSBC Climate Radar-Top conviction themes:Solar and Wind,21 May 2019,we highlighted HSBCs fundamental analysts positive outlook on global solar and listed key reasons to support their view.In their last update Upstream solar China tightens its grip,21 June 2019,they have strengthened t
46、heir case and see a bright future for the solar industry.This is mainly due to a sharp(25%,y-o-y)fall in solar system costs which drives solar powers cost competitiveness and leads to a bright demand outlook.They attribute the fall in costs in solar systems to the growing dominance of China in the g
47、lobal solar supply chain.In 2018,China accounted for c90%of global wafer supply,c80%of global cell/module supply,and c50%of global polysilicon supply(up from 14%in 2010).Steep falls in solar prices were driven by 17%y-o-y fall in Chinese PV installations in 2018 as well as the aggressive capacity ex
48、pansion in both upstream and downstream,largely by Chinese suppliers,resulting in material oversupply in the market.Looking ahead,HSBC forecasts global solar installations to grow 13%(y-o-y)to 117GW in 2019,10%(y-o-y)to 129GW in 2020 and 12%to 145GW in 2021.Regionally,Asia-Pacific is expected to lea
49、d with 57%of global Solar Installations forecast in 2019,followed by Americas at 18%and Europe at 12%;with the rest of the world accounting for the remaining 13%of global Solar Installations forecast.Earnings revisions ratio for Solar continue to rise in Q3 2019 7.HSBC Global Solar Installations for
50、ecasts(GW)Source:Solar Europe,BNEF,HSBC estimates HSBC forecasts for global solar installations is to grow 13%(y-o-y)in 2019 0102030405060708090201120122013201420152016201720182019e2020e2021eGWAsia PacificAmericasMEA/Rest of WorldEurope 7 Equity Strategy&Climate Change Global 28 August 2019 Integrat
