Incidents:
The company announced the results for the first half of 2021. Net profit is expected to increase 55% year over year, exceeding our expected growth rate of 40%-50%.
Investment points:
Benefiting from increased installed capacity and good wind conditions, the company's wind power generation increased 70.2% year on year and photovoltaic power generation increased 24.5% year on year in the first half of the year.
Due to the rush before parity at the end of 2020, and the fact that China's wind conditions in the first half of recent years were significantly better than in the same period last year, the power generation capacity of China's listed wind power companies generally showed a high growth trend. In the first half of 2021, the company achieved wind power generation of 3.798 billion kilowatt-hours, a year-on-year increase of 70.2%; photovoltaic power generation of 803 million kilowatt-hours, an increase of 24.5% over the previous year; and total new energy power generation increased 59.9% year-on-year.
From performance, it is speculated that the profitability of the company's Korean thermal power assets is stable, and that domestic new energy performance has increased. The company's current announcement only revealed “anticipated net profit increase of 55% year-on-year”. The reason is “the contribution of newly put into production of wind power and solar projects” and “the increase in power generation from existing wind power and solar projects”, which is consistent with the power generation data disclosed by the company. 43% of the company's profit for the full year of 2020 came from thermal power, with the most important asset being the Korean gas power plant. The electricity price system for gas power plants in South Korea ensures that fuel costs can be transmitted smoothly. Although international LNG prices fluctuated greatly in the first half of the year, it is speculated from overall performance that the profitability of the company's Korean thermal power assets was stable, and the profitability of domestic thermal power assets was also relatively limited by the impact of coal prices. Further, assuming that the company's overall profit in the thermal power sector is stable in the first half of this year, if it wants to achieve a 55% year-on-year increase in overall net profit, it is estimated that the company's new energy profit growth rate in the first half of the year greatly exceeded the growth rate of power generation. On the one hand, it shows the good profitability of newly put into production units, and on the other hand, it shows that under favorable wind conditions, stock units have extremely high performance elasticity.
Backed by the General Nuclear Power Group, it is expected that continuous high-quality growth will be achieved during the “14th Five-Year Plan” period, and the current stock price has strategic allocation value. CGN plans to add 30 million kilowatts of new energy installed during the “14th Five-Year Plan” period, with an average of about 6 million kilowatts per year. As an important development platform for the Group's new energy business, we expect that the company will maintain an additional installed capacity of no less than 1 million kilowatts per year during the “14th Five-Year Plan” period, and the prospects for performance growth are clear. Under a “non-competition contract” with the Group, the company can select the best among the Group's new energy projects to ensure that the project return level is ahead of its peers. Furthermore, the company has a huge installed capacity of new energy in vitro. As of the end of 2020, the CGN New Energy Division was transporting 16.723 million kilowatts of wind power installed domestically; photovoltaics were operating 6,936,600 kilowatts of installed capacity, and the company passed a “non-competition contract”
The “Entrusted Management Agreement” controls the priority of new energy projects within the Group and is responsible for the actual operation and management of the CGN wind power and CGN solar energy businesses. It is expected that the Group will rely on the Group to achieve rapid growth. The current stock price has strategic allocation value.
Profit forecast and valuation: The profit forecast is not adjusted yet. The company's net profit forecast for 2021-2023 is 1,361, 16.84, and 2,032 billion yuan, respectively, and earnings per share are 0.32, 0.39 and 0.47 yuan/share, respectively. The price-earnings ratio corresponding to the current stock price is 9.5, 7.7, and 6.4 times, respectively. The company is currently small in size, has good growth, and enjoys a collaborative advantage by relying on the Group. We believe that the company's current valuation has a significant advantage over comparable companies and maintains a “buy” rating.