1H22 net profit increased by 15%, maintaining "Buy"
The 1H22 revenue of Jingneng Clean Energy (Jingneng) was 10 billion yuan, up 6% from the same period last year, and the net profit from its mother was 1.8 billion yuan, up 15% from the same period last year, which is equivalent to 58% of our previous forecast net profit for the whole year. The main operating conditions of 1H22 are as follows: 1) wind power / photovoltaic increased grid-connected capacity 856 × 100MW; 2) Development and acquisition of green power project 1.14GW. As the installed capacity and electricity price of the green power project are lower than we had expected, we have lowered our 2024 net profit forecast to RMB 100 million in 28-34-41 (previous value: RMB 31-41-52 million), and adjusted our BPS forecast to RMB 3.80 pm 4.11 pm (previous value: RMB 3.83 pm 4.22 pm). We have lowered the target price to HK $2.62, corresponding to 0.6 times the 2022 forecast PB (previous value: HK $2.83, based on 0.6 times the 2022 forecast PB).
Maintain "buy".
Green Power: the increase of installed capacity drives the increase of revenue and operating profit
Revenue from Jingneng 1H22 wind power / photovoltaic power generation increased by 37%, 12%, and operating profit increased by 36%, 16%, mainly driven by new installed capacity since July 2021. According to its 1H22 performance announcement, Jingneng adheres to the strategy of independent development and acquisition of wind energy and photovoltaic. 1H22 develops / acquires 1.04/0.10GW new wind power / photovoltaic projects. Taking into account the projects under construction, acquisition projects and Jingneng's goals, we predict that its wind power and photovoltaic installed capacity 2.64GW (previous value: 3.0GW) in 2022, and cumulative increase in 9.39GW (previous value: 10.0GW) from 2022 to 2024.
Gas and electricity: the decrease of energy utilization hours leads to a decline in profits.
Jingneng 1H22 gas and electricity revenue fell 3% year-on-year, mainly due to a decline in utilization hours (110 hours lower than the same period last year); with the extension of the heating period, thermal energy revenue increased by 11% year-on-year. Operating profits in this sector fell 3 per cent year-on-year, mainly due to electricity generation. The company's installed capacity of gas and electricity remains unchanged, which is 4.7GW, and the capacity reserve is 5.45GW. The gas and power business remains a stable source of revenue for the group, and we expect Jingneng to increase its gas and power installed capacity 2GW by 2025.
The target price is lowered, but the stock price is still undervalued.
We give Jingneng a target price of HK $2.62, corresponding to 0.6 times the 2022 forecast PB. The valuation represents a discount of 0.51 times the average of comparable companies (Wind consensus expectations), mainly because most of the company's performance comes from gas and electricity, and its green capacity target is lower than that of the industry leader. We believe that the company will rapidly expand green power capacity in 2022-2024, and its current share price is seriously undervalued. Repeat "buy".
Risk hint: natural gas prices rise excessively; green power production capacity may not be as good as we expected.
