Incidents:
The company announced its 2022 mid-year report. The company achieved net profit of 1,904 million yuan in the first half of the year, an increase of 53.98% over the previous year; of these, the net profit achieved by Fumo in a single quarter in the second quarter was 1,144 billion yuan, an increase of 35.33% over the previous year, in line with our expectations.
Key points of investment:
The first half of the year has been plentiful, with the highest net profit for the same period in history. Concern is that electricity prices may rise in the context of tightening electricity supply and demand. Benefiting from abundant incoming water from the Hongshui River Basin, the company completed a total of 23.002 billion kilowatt-hours of electricity in the first half of the year, an increase of 24.94% over the previous year (including 20.889 billion kilowatt-hours of hydropower, an increase of 29.65% over the previous year; 1.1 billion kilowatt-hours of thermal power, a decrease of 39.92% over the previous year; wind power of 978 million kilowatt-hours, an increase of 108.97% over the previous year). The 22H1 company's revenue growth rate was 29.78%. Although the company did not disclose revenue by power source type in the interim report, in the context of a 40% year-on-year decrease in thermal power generation capacity, where the absolute value of electricity prices is relatively high, the company's revenue growth rate in the first half of the year exceeded the growth rate of power generation by about 5 percentage points. As a result, the average feed-in price of hydropower rose slightly. Judging from the electricity price formation mechanism, compared with hydropower in Yunnan, Sichuan and other places, the company's hydropower marketization ratio is low. It has effectively protected feed-in tariffs when electricity was oversupplied in the past few years, but it has limited the rise in the company's electricity prices in the past two years. The current rise in the company's average feed-in tariff is noteworthy. We judge that the pattern of electricity supply and demand in the southern region will continue to be tight. In anticipation of power system reform, there is an opportunity for the company's electricity prices to rise.
The rapid growth of new energy sources is expected to bring a second growth curve to the company. The company's wind power generation capacity doubled year-on-year in the first half of the year, and the expansion of new energy sources gradually gained momentum. In 2021, the company added 500,000 kilowatts of new energy. In terms of project reserves and investment, in September 2021, the company announced that it would invest 2,542 million yuan to build Guangxi Long'an Zhendong Photovoltaic Power Generation Project, Guangxi Longlin County Shebaoxiang Photovoltaic Project, Guangxi Heshan Company Ash Field Photovoltaic Project, Guangxi Wuxuan County Yacun PV Project, Guangxi Binyang Mawang Phase III Wind Power Project, and Guangxi Binyang Mawang Wind Power Phase III Project, totaling 511.22 MW. The project's internal yield was over 7%. Then, in April 2022, the company announced once again that it plans to invest in the construction of the Guangxi Tiandong Nongguang Complementary Photovoltaic Project (Phase I), the Guangxi Bobai She Guangzhang Wind Farm Phase III Project, and the Shanxi Qixian Optical Storage Integrated Project totaling 299 MW, with an internal rate of return of over 6%. The above projects have all obtained approval documents, and the construction cycle ranges from 4 to 12 months. We expect these projects to be gradually put into operation in 2022-2023. The total project scale is 810,000 kilowatts. After completion and commissioning, the company's new energy capacity will double.
The historical dividend rate is high, so I'm looking forward to the 2022 dividend. The company has maintained a high dividend rate in recent years. The dividend rates in 2019-2021 were 70.85%, 68.18%, and 87.45% respectively, ranking in the first tier of the hydropower sector. According to the company's net profit forecast for 2022, assuming a dividend rate of 70%, the corresponding dividend rate under the company's current stock price will reach 4.2%.
Investment analysis opinion: Considering the company's incoming situation and new energy business expansion, we raised the company's net profit forecast for 2022-2024 to 30.1, 28.5, and 3.06 billion yuan respectively (2,556, 2,706 and 2.93 billion respectively before the adjustment). The PE corresponding to the current stock price is 16, 17 and 16 times respectively. Considering that the company's current valuation is lower than the industry level, we maintain the “buy” rating.
Risk warning: Incoming water falls short of expectations, and the progress of new energy projects falls short of expectations.