Guodian Investment Co., Ltd. is the only national power listing platform, which has not been paid enough attention to by the market at present. The company is the largest electric power listing platform under SPIC Group, and its business territory covers all conventional power types, including thermal power, hydropower and new energy. Before the 13th five-year Plan, the company's performance and stock price showed a bright trend due to the installation structure of mutual benefit between water and fire. However, since 2016, the performance of the company's thermal power sector has been seriously damaged by the high operation of coal prices. in terms of net profit composition, the company once became a hydropower company. However, due to the natural fluctuation of the incoming water in the Yuanjiang River Basin and the negative impact of the continuous reduction of electricity prices in Hunan Province, the profits of the company's hydropower sector are hardly stable. Since then, the company has entered a long trough and the market attention continues to decrease.

The fluctuations in the performance of hydropower and thermal power have greatly masked the rapid growth of the company's new energy business, which accounted for more than 40% of the company's profits in 2020. From a static point of view, the company's installed capacity reached 23.88 million kilowatts at the end of 2020, including 14.99 million kilowatts of thermal power, 3.51 million kilowatts of hydropower, 1.99 million kilowatts of wind power and 3.39 million kilowatts of photovoltaic power. But from a dynamic point of view, during the 13th five-year Plan period, the focus of the company's development has shifted to new energy. From 2016 to 2020, the installed scale of hydropower is stable, the installed capacity of coal power is only 1.35 million kilowatts, and the CAGR is only 1.97%. While the installed capacity of wind power increased from 310000 kilowatts to 1.99 million kilowatts, CAGR reached 58.57%, photovoltaic installed capacity increased from 390000 kilowatts to 3.39 million kilowatts, and CAGR reached 71.90%. From the 2020 performance, the company's new energy profit has accounted for more than 40%, new energy is about to exceed half, and will become the company's main performance growth point.

The growth of new energy performance is deterministic, and the adjustment of management should be paid more attention to. The company rapidly increases the installed scale of new energy through endogenesis and epitaxy. At present, it is under construction to install 2.59 million kilowatts of photovoltaic and 189 million kilowatts of wind power. Since the beginning of this year, it has acquired new energy assets many times, bringing deterministic performance growth in the new energy business. The company completed the change of executive director and executive in July, and the two new executive directors are the new energy chief engineer of the current China Power Investment Group and the former general manager of Geodian, respectively, demonstrating the company's determination to transform new energy and the strong support of SPIC Group to the company. the development of the company's new energy business is expected to accelerate.

The cash flow value of traditional power business is prominent, which provides support for the company's new energy project development. The installed capacity of the company's existing thermal power assets is up to 14.99 million kilowatts. Although the proportion of coal power continues to decline at the strategic level in the future, the cash flow value of coal power can not be ignored. The cash flow corresponding to depreciation of stock assets alone reaches 2 billion yuan per year. Although the performance of hydropower fluctuates under the influence of incoming water, depreciation plus net profit can still bring 22-3 billion yuan / year cash flow, both of which will provide strong cash flow support for the company's new energy installation and development.

Under the segment valuation method, the company's current market capitalization is undervalued, and there is 90% room for market capitalization repair in the future:

1. The intrinsic value of the new energy sector is about 21 billion yuan, exceeding the current market value of the company. According to the comprehensive installation planning and power generation situation in the first half of 2021, we expect the company's new energy sector to return home net profit of RMB 1.4 billion in 2021. With reference to the current valuation of the new energy operation company of AqiH share, and conservatively giving the new energy business 15 times PE calculation, the intrinsic value of the company's new energy sector is about RMB 21 billion, exceeding the company's current market capitalization.

2. The cash flow value of hydropower approximate sustainable assets is prominent, and the intrinsic value under EV/EBITDA valuation method is about 5.8 billion yuan. In order to reflect the cash flow value, we use the EV/EBITDA valuation method to value the company's hydropower sector. With reference to the current average 10 times EV/EBITDA of A-share hydropower companies, after deducting the interest-bearing liabilities, we estimate that the parent equity value of the company's hydropower division is 5.8 billion yuan, corresponding to about 1.8 times PB.

3. The cash flow corresponding to the depreciation of coal and electricity is worth about 4.8 billion yuan after repaying the debt. We adopt a conservative assumption for the company's coal power holding assets, that is, the accounting profit is zero for a long time and will be shut down naturally after the expiration of its useful life. under the 10% discount rate, the present value of the cash flow corresponding to depreciation can reach 4.8 billion yuan after repaying the debt.

4. The company participates in 13.88% of the shares of Shanghai Electric Power, corresponding to about 2.5 billion yuan according to the current market value of Shanghai Electric Power.

Profit forecast and rating: under the conservative assumption, the intrinsic value of the company is estimated to be as high as RMB 210,588,48,25,34.1 billion, equivalent to HK $40.9 billion, an increase of about 90 per cent over the current market capitalization. We expect the company's 2021-2023 net profit to be RMB1.853 billion (thermal power sector is expected to lose about 500 million yuan in 2021), equivalent to HK $16.27,22.24 and HK $2.822 billion, respectively, and the current share price corresponds to a price-to-earnings ratio of 13, 10 and 8 times. From the perspective of dividends, the proportion of dividends promised by the company is not less than 50%, and the dividend rate in the past three years has been more than 70%. According to the dividend ratio of 60% in 2021, the company's current share price corresponds to a dividend yield as high as 4.5%. Cover for the first time, giving a "buy" rating.

Risk hint: the coal price continues to exceed the expected high level, and the incoming water in the Yuanjiang River Basin fluctuates greatly.