The total electricity generation of Datang New Energy fell 6.9% in the first quarter of 2022 compared with the same period last year. In the first quarter of 2022, wind power generation fell 8.9% year-on-year to 6691 gigawatt hours, mainly due to the weakening of wind resources. The estimated hours of wind power utilization in the current quarter fell 15.2% to 558 hours compared with the same period last year. Due to a low base of comparison in 2021, solar power generation surged 81.5% in the first quarter of 2022 compared with the same period last year.

The company's net profit belonging to the owner of the parent company in 2021 increased by 54.3% year-on-year to 1.831 billion yuan, which was lower than we expected. The lower-than-expected performance is mainly due to a large increase in maintenance costs and material costs. At the same time, the company made provision for impairment again in the second half of 2021, and various miscellaneous expenses also increased to varying degrees. The company added a total of 848.5 megawatts of wind and solar power in 2021, of which the new installed capacity of solar energy was significantly lower than that previously guided by management.

Maintain Datang New Energy's "collection" rating but lower its target price to HK $3.70. Our current forecast for Datang New Energy 2022swap 2023 / 2024 earnings per share is RMB 0.174 / 0.232 / 0.302 respectively. The decline in the company's electricity generation is likely to put pressure on its results in the first quarter of 2022, leading to a small year-on-year decline in shareholder net profit. However, considering that the company is still expected to benefit from the domestic energy transformation and maintain a relatively rapid installed capacity expansion during the 14th five-year Plan period, we remain optimistic about its long-term profit outlook. There has been a significant increase in other government funds in the recent 2022 central government budget, which may mean that the recovery of subsidy arrears is likely to accelerate. In view of the fact that the company's 2021 results and the completion of new installations are lower than we expected, we have lowered our target price from HK $3.75 to HK $3.70; the current target price is equivalent to the 2022 / 2023 / 2024 price-to-earnings ratio of 17.3 / 13.0 / 10.0.

The total electricity generation of Datang New Energy ("the Company") fell 6.9% in the first quarter of 2022 compared with the same period last year. Wind power generation fell 8.9 per cent year-on-year to 6691 gigawatt hours in the first quarter of 2022, mainly due to weaker wind resources (especially in January and February). The estimated hours of wind power utilization in the current quarter fell 15.2% to 558 hours compared with the same period last year. The company's installed weighted average wind speed fell 12.3% to about 5.49 m / s in the first quarter of 2022 compared with the same period last year; the average monthly wind speed in Northeast and North China basically recorded double-digit year-on-year declines. Due to a low base of comparison in 2021, solar power generation surged 81.5% in the first quarter of 2022 compared with the same period last year. Taking into account the decline in average wind speed in the first quarter compared with the same period last year, we expect the company to record a year-on-year decline in wind power utilization hours to about 2150 hours in 2022. As most of the company's new solar projects have completed preparations for production, solar energy utilization hours are expected to return to close to the national average in 2022.

The company's net profit belonging to the owner of the parent company in 2021 increased by 54.3% year-on-year to 1.831 billion yuan, which was lower than we expected. The company's 2021 revenue rose 24.0% year-on-year to 11.625 billion yuan, mainly due to an increase in revenue from electricity sales. Due to the increase in installed capacity, which led to an increase in labor costs, coupled with higher maintenance costs and material costs, the total operating expenses increased by 27.5% compared with the same period last year. In addition, as the company again made provision for impairment in the second half of 2021, other operating expenses for the year increased by 56.6% year-on-year to 1.212 billion yuan. Net financial expenses were flat year-on-year, helped by a decline in average borrowing rates. Trade and bill receivables increased by 32.7% to 16.47 billion yuan by the end of 2021 compared with the same period last year. The company proposes to pay a final dividend of 0.030 yuan, corresponding to a dividend yield of 16.6%, down 6.9% from a year earlier. The company recorded interest of 521 million yuan on perpetual bills and bonds in 2021, making the company's actual shareholder net profit for the whole of 2021 reach 1.31 billion yuan, and earnings per share increased by 41.3 percent to 0.1802 yuan compared with the same period last year. Overall, the company's 2021 performance was worse than we expected, and the net profit attributed to the owner of the parent company was 10.7% lower than our previous forecast.

The lower-than-expected performance is mainly due to a large increase in maintenance costs and material costs. At the same time, other operating expenses also exceeded our expectations, as the company recorded an impairment loss of RMB 46.9 million on JV investment in the second half of 2021, and various miscellaneous expenses also increased to varying degrees. The company added a total of 848.5 megawatts of wind and solar power in 2021, of which the new installed capacity of solar energy was significantly lower than that previously guided by management.

Summary of Datang New Energy telephone performance Conference in 2021

1) in 2021, the volume of electricity traded in the market increased by 58.4% year on year to 9.03 billion kWh, accounting for 36.0% of the total electricity connected to the grid. The average price of electricity traded in the market is 488.7 yuan per megawatt hour (including tax), an increase of 61.6 yuan per megawatt hour over the same period last year, equivalent to a 16.9% discount over the benchmarking price. The company's management expects the share of market trading electricity to continue to rise in 2022, while the market transaction price may be adjusted.

2) the company recovered the renewable energy subsidy of 1.68 billion yuan in 2021. By the end of 2021, the balance of subsidies receivable totaled 15.38 billion yuan, up 39.8% from the same period last year. At present, most of the company's receivables are already registered in the government catalogue, so the company has no intention to make an impairment provision for subsidies receivable in 2022. Under the catalysis of the recent policy of the Ministry of Finance, the management also expects the recovery of existing receivables to be greatly accelerated. The funds received will be used mainly for the development of new projects, while the rest will be used to repay the debt.

The key Adjustment of Datang New Energy

1) We have adjusted its new wind power and solar power installation assumptions according to the company's updated installation plan. The company's management clearly pointed out in the latest guidelines that its new wind power / solar installation targets are 1.2 gigawatts / 0.8 gigawatts respectively. Management also said it is expected to increase investment in the project, which will depend on the outcome of this year's subsidized bidding. Assuming that the unit construction cost of the company's onshore wind farm project is 6000-6500 yuan per kilowatt, we expect the company's capital expenditure to be 11 billion yuan or more in 2022. As for the medium-and long-term goals, the company maintains its target of 40 gigawatts of installed capacity by the end of 2025. Taking into account the actual completion of the company's previous development plan and the limit of its target debt ratio to about 70%, we now expect the company to install an additional 2-3 gigawatts per year between 2022 and 2025, which is a conservative estimate. The company reiterated its requirement for a pre-tax internal rate of return of 7.0% for subsequent wind / solar projects and said that the return on investment for some strategic large-scale projects may be adjusted.

2) reduce the forecast operating profit margin of 2022 / 2023 / 2024 by 6.3 percentage points / 4.3 percentage points / 3.5 percentage points respectively. The downgrade is mainly based on lower forecasts of electricity sales revenue and higher labor costs. Maintenance costs may decline slightly year-on-year in 2022 but will still be higher than the average of the past five years, mainly due to the rapid expansion of the company's installed capacity. We currently expect the company's operating profit margin to be 40.5% / 41.3% / 41.9% respectively from 2022 to 2024.

3) downgrade the financial expense assumption for 2022-2024. We expect that the accelerated recovery of renewable energy subsidies will partially alleviate the company's financing needs, resulting in a decline in the average balance of interest-bearing liabilities. Due to the possibility of changes in accounting standards for sustainable debt instruments, the company may reduce the issuance of perpetual notes / renewable corporate bonds in the next few years.

Maintain Datang New Energy's "collection" rating but lower its target price to HK $3.70. We currently forecast Datang New Energy 2022 / 2023 / 2024 earnings per share of RMB 0.174 / 0.232 / 0.302 respectively. The decline in the company's electricity generation is likely to put pressure on its results in the first quarter of 2022, leading to a small year-on-year decline in shareholder net profit. However, considering that the company is still expected to benefit from the domestic energy transformation and maintain a relatively rapid installed capacity expansion during the 14th five-year Plan period, we remain optimistic about its long-term profit outlook. There has been a significant increase in other government funds in the recent 2022 central government budget, which may mean that the recovery of subsidy arrears is likely to accelerate. We maintain the "collection" of Datang new energy.

Rating. In view of the fact that the company's 2021 results and the completion of new installations were lower than we expected, we lowered our target price from HK $3.75 to HK $3.70 to reflect our adjustment to our earnings per share forecast; the current target price is equivalent to 17.3 times / 13.0 times / 10.0 times 2022max 2023 / 2024 P / E and 0.8 times / 0.9 times / 0.9 times 2022x2023 / 2024.