Maintain “buying”: We adjusted the 2023-2024 EPS by +5.7% and -2.5% to RMB 0.34 and -2.5% respectively to RMB 0.34 and RMB 0.47, mainly due to the company's better-than-expected operating and financial performance, while also reflecting lower than expected 2023 installation targets. We added the 2025 EPS forecast of RMB 0.61. Considering the current macro environment, the valuation multiplier of Hong Kong-listed renewable energy companies declined, and the target price was lowered to HK$3.20 (based on 8.2 times PE in 2023).
The 2022 results exceeded expectations: Datang New Energy (the “Company”) achieved shareholder profit of HK$3.485 billion in 2022, higher than Bloomberg's unanimous forecast and our expectations of 50.1% and 41.9%, respectively. The performance exceeded expectations mainly due to lower operating and financial costs than expected, as well as one-time compensation income of the fan supplier of HK$333 million. In 2022, the company added 1.1 gigawatts of new energy installations and failed to achieve the 2 GW installation target for that year — a common situation in the industry under the influence of repeated epidemics and soaring PV costs last year. For 2023, the company's management directed the addition of new energy installations to 1.5-2.0 gigawatts. Considering the company's improved financial situation, we think this target is conservative.
We believe that the increase in the company's profitability in 2023 will be driven more by operational optimization, followed by increased installed capacity. In 2022, the company achieved impressive operating performance. With the wind abandonment rate greatly increased, wind power utilization hours remained flat at 2,262 hours year on year, while solar energy utilization hours increased 333 hours year on year. Driven by technological transformation, digital assistance, and overall optimization of power generation management, the company's electricity loss due to unit performance issues decreased 22.32% year on year, while power loss due to unit defects decreased 7.48% year on year. Given the potential for optimizing the company's operations, especially considering the potential to “transform old wind farms from big to small”, we believe that the effectiveness of the company in driving profit growth through operational optimization will not be inferior to installed growth.
The “big for small” wind farm was mentioned for the first time: in the company's 2022 performance announcement, there was a discussion about “big for small” for the old wind farm. This is the first time that the company mentioned the potential of this wind farm transformation method in an official announcement. We believe that the old wind farm “big for small” has strong economic efficiency. Its promotion at home is gradually getting closer. With the country providing more certainty on the policy side, its promotion is expected to accelerate. According to case studies at home and abroad, “big to small” old wind farms can, on average, increase the installed capacity of electricity generation to double the original, and the power generation capacity to three times the original. The company's management pointed out that the company currently has about 2 gigawatts of wind power that meets the “big for small” policy and technical conditions, and we estimate that this figure will reach nearly 4 gigawatts by the end of 2025.
Downside risks: lower electricity demand than expected, raw material costs higher than expected, regulatory and policy changes unfavorable to independent power generation companies, extreme weather conditions, etc.