Net profit increased year-on-year, driven by asset injection
On August 27, 2021, the company released its semi-annual report. The first half of the year achieved revenue of 1,507 million yuan, +21.61% year on year, achieving net profit of 241 million yuan, +51.99% year on year; after deducting non-net profit of 239 million yuan, +51.63% year on year. The company is a listing platform for State Grid Energy. After energy saving assets from distribution networks were injected in various regions of the State Grid in '21, it fully benefited from the domestic distribution network construction needs in various regions of the State Grid. Considering the gradual increase in energy efficiency demand for distribution networks, we expect net profit of the mother to be 5.60/611/684 million yuan in 21-23 (previous value was 544/6000/655 million yuan). Comparatively, Wind in '21 expected PE to be 20.09 times. Considering the company's internal competition issues within the State Grid, the company will fully share China Grid's internal distribution transformation needs. We will give the company 21 24 times PE per year, corresponding to the target price of 17.52 yuan, maintaining the “increase in holdings” rating.
The energy-saving assets of the distribution network have been steadily increasing, driving the company's gross margin growth
According to the company's disclosure, 21H1 benefited from the commissioning of the company's energy saving projects and new acquisitions, and the company's distribution network energy saving transformation business revenue increased dramatically. As of 21H1, the company's projects under construction totaled 339 million yuan, an increase of 10% over the end of 2020. The main reason is that the new projects under construction have not yet been completed, leading to an overall improvement in the projects under construction. We expect that the productive technology improvement project and the Xinjiang Phase II project are expected to release performance in '21, corresponding to an average annual contract amount of about 87 million yuan, which will help increase the company's future revenue. According to the State Grid's “Carbon Peak and Carbon Neutrality” action plan, during the 14th Five-Year Plan period, the State Grid focused on promoting energy saving and efficiency throughout society, focusing on raising the level of electrification of terminal consumption; speeding up the implementation of the company's energy saving and emission reduction, and focusing on reducing its own carbon emissions. We believe that demand for energy-saving transformation of the 14th Five-Year Distribution Network may increase.
The acquisition of assets solved competition issues in the industry, fully benefiting from the fact that the State Grid Distribution Network Energy-Saving Transformation Demand Company signed asset purchase agreements with various provincial integrated energy companies at the end of 2020 to acquire energy-saving assets for distribution networks in various regions. According to the “Non-public Stock Issuance Plan” issued in December '20, various provincial integrated energy companies signed performance commitment compensation agreements with Fuling Electric Power, promising that the net profit scale of existing asset packages in 20-22 would not be less than 139, 158, and 144 million yuan, and undertook corresponding compensation obligations, which is expected to further increase the stability of the performance of the assets to be purchased. According to the agreement to acquire energy-saving assets in 2016, the State Grid Corporation promised to resolve the issue of competition within the State Grid industry within 5 years, and will fully benefit from the energy-saving transformation of the State Grid regional distribution network in the future.
Electricity consumption increases in the Fuling region, and revenue and profits are expected to improve
The company's power supply business is mainly concentrated in the Fuling region of Chongqing, purchasing electricity from Chongqing Electric Power and East Sichuan Electric Power to provide power supply and sales services to enterprises in the region. The revenue and gross margin of the power supply business were under pressure due to the decline in local electricity consumption and the 95% settlement of industrial and commercial electricity prices in 2020. According to the National Bureau of Statistics, 21H1 Chongqing's GDP was 1.29 trillion yuan (+12.8% year on year), power generation capacity was 50.03 billion kilowatt-hours (+26.37% year on year), and electricity sales in the company's power supply business are expected to increase during the year. Fuling plans to reduce electricity prices by less than 2.85% in '21. Compared with electricity prices settled at 95% in '20, the company's average electricity sales price in '21 is expected to rise compared to '20, supporting the growth of the power supply business.
Risk warning: Power grid investment falls short of expectations; industry competition intensifies.