The third quarter results are in line with our expectations.
Huadian International announced its results for the third quarter of 2021: the company's operating income in the first three quarters was 78 billion yuan, + 19.3% compared with the same period last year, and its net profit was 1.62 billion yuan,-57.5% compared with the same period last year. Among them, the third quarter due to higher thermal coal prices brought about a net loss of 1.774 billion yuan (1.366 billion yuan in the same period last year).
The gross profit margin in the third quarter was negative, reaching the worst level in history, and we expect the unit price of standard coal to rise by as much as 80% year-on-year. The company's third-quarter gross margin was-10%, the worst level in history. In the past 10 years, only in 2011 and early 2017, there was a single-quarter gross profit margin of less than 10%, but never negative gross profit, confirming the difficult situation of coal and power losses to cash flow. Although electricity prices have risen slightly, considering that the spot price of thermal coal (5500 kcal) doubled to 1142 yuan / ton in the third quarter compared with the same period last year and some long-term association contracts, we estimate that the actual unit fuel cost of electric power enterprises will rise by about 80%, and the loss recorded is in line with expectations.
The growth rate of investment income in the first three quarters is considerable, increasing capital, benefiting new development and introducing new momentum. The company's investment income in joint ventures and joint ventures in the first three quarters quickly rose to 1.184 billion yuan from 366 million yuan in the same period last year, accounting for 73% of the profits in the first three quarters. Up to now, relying on the equity ties of Fuxin Development, the installed capacity of the company's new energy rights and interests has risen from 50-6 million kilowatts before the adjustment to about 8 million kilowatts. We believe that the company will also share the performance growth brought about by equity investment in the future.
Development trend
It is expected that the company's future capital expenditure may be mainly project acquisition and environmental protection technology transformation. After the reorganization, the company will serve as the conventional energy integration platform of Huadian Group, while environmental protection and energy saving, flexible transformation, pumping construction may become another major use of capital expenditure.
Quarterly results hit bottom and the fundamentals of thermal power picked up marginally. As monthly market prices can rise in the fourth quarter, and the cost-side government has a clear intention to regulate coal prices and take a number of measures, we believe that both the revenue and cost side of thermal power are expected to be marginal repaired in the fourth quarter and next year.
Profit forecast and valuation
Due to the pressure on thermal power profits caused by the continued strong price of thermal coal, we cut the 2021 net profit by 101.7% to-79.02 million yuan, and maintain the 2022 homing net profit forecast of 5.021 billion yuan.
The current A-share price corresponds to a price-to-earnings ratio of 8.9 times 2022. The current H-share price corresponds to a price-to-earnings ratio of 4.9 times 2022. Abig H shares maintain an outperform industry rating, but considering the fundamental inflection point and the revaluation brought about by the adjustment of electricity price policy, and the valuation switch to the 2022 benchmark, we raised the list price of Aprime H shares by 30.0% to 5.37 yuan / 3.76 Hong Kong dollars, corresponding to 10.6 times / 6.3 times 2022 price-to-earnings ratio, which is 18.8% 28.3% higher than the current share price.
Risk
The landing effect of electricity price policy is weaker than expected.