A high-quality subsidiary of China Power Investment Corporation, which plans to provide equity incentives to help develop the company, is an important listing platform for China Power Investment Group. It mainly covers electricity supply in East China such as Shanghai, Jiangsu, and Anhui. In order to deepen the reform process of state-owned enterprises, the company recently actively prepared an equity incentive plan. The equity incentive plan covers the company's management and core technical personnel, etc., and the enforcement requirements are that 2022-2024 ROE should not be less than 4.5%, 5%, 5.5%; net profit growth rate should not be less than 11%; and clean energy accounts for 54%, 56%, and 58% of installed capacity. We believe that equity incentive plans can help stimulate management's subjective activism and achieve preservation and appreciation of state-owned assets.
The coal power reform is deepening at an accelerated pace, and Changxie Coal is expected to lock in costs. The inflection point of thermal power has now been affected by soaring coal prices in 2021, and thermal power companies are generally losing heavily. In October 2021, the NDRC issued a document deepening the market-based reform of coal power, requiring that all coal and electricity be traded in the market, and that the range of electricity price increases was relaxed from 10% to 20%, with no restrictions on electricity price increases for energy-intensive enterprises. Under the tight electricity supply and demand situation, Jiangsu and many other provinces have seen electricity prices rise close to 20% in 2022, an increase of more than 20% over the previous year. On the coal side, all coal supply for thermal power will be locked down using Changxie coal in the future to prevent fluctuations in coal prices in the market from having an impact on thermal power operations. We believe that deepening the market-based reform of coal power will help enhance the ability of coal power companies to withstand fluctuations in coal prices. The risk of losses in the company's coal power business in 2022 is low, and profitability is expected to recover significantly.
Scenery installed capacity is growing rapidly, and the new energy business is booming
In the context of the energy revolution led by carbon neutrality, renewable energy such as wind and light will become the most important primary energy source in the future. The company began entering the wind power business as early as 2008, and began entering photovoltaic power generation in 2012. In recent years, the company has accelerated its wind and photovoltaic power generation business layout. In particular, the development of offshore wind power is impressive. By the end of 2021, the company had 3,7984 million kilowatts of wind power installed, an increase of 29.24% over the previous year, and 3.8605 million kilowatts of photovoltaics, an increase of 33.23% over the previous year. Wind and photovoltaic installations accounted for 40.2%, making it a leading power operator in the transition from thermal power to new energy. The company has rich operating experience, good wind and light operating efficiency, and is ahead of comparable companies in terms of profitability of green power operations. It is expected that the company's wind and optical installations will maintain a high growth rate during the 14th Five-Year Plan period, and the rapid growth of new energy installations is expected to continue to increase the company's performance.
The value of new energy assets has not yet been discovered, maintaining the “buy” rating
As a thermal power conversion to new energy operator, the thermal power business is expected to provide sufficient cash flow for new energy expansion. We are optimistic about the performance flexibility brought about by the company's thermal power business in the short term, and the potential for sustainable development brought about by the company's new energy business under the opportunities of the energy revolution in the long run. We expect the company's revenue from 2021 to 2023 to be 30.41 billion yuan, 32.5 billion yuan, and 34 billion yuan respectively, while the net profit of the mother is -1,823 billion yuan, 2,673 billion yuan, and 3,203 billion yuan respectively, maintaining the company's “buy” rating.
Risk warning: Take advantage of the risk of an hourly decline; the risk of shareholders reducing their holdings; the risk of falling electricity prices; the risk of a sharp rise in coal prices.