2022/1Q23 Net Profit +105%/-303% YoY, Profit Forecast and Target Price Construction Investment Energy released results: 2022 achieved revenue of 183 billion yuan (+22% year on year), net profit of Gimo was 100 million yuan (+105% year on year), net profit of 100 million yuan after deduction (+100% year-on-year), all three were consistent with the performance report; 1Q23 achieved revenue of 5.4 billion yuan (-1.4% YoY), net profit of -150 million yuan (-1.4% YoY), net profit of -150 million yuan after deduction (-353% YoY)), high-priced inventory Coal causes short-term losses. The fundamentals of the coal power industry have bottomed out and the company's performance in 2023 is expected to improve dramatically. The profit forecast is adjusted according to changes in the number of projects under construction and utilization hours, the estimated net profit for 23-25 is 474/6.49/951 million yuan (previous value: 538/718/100 million yuan), BPS 5.68/5.90/6.24 yuan (previous value: 572/6.13/- yuan). For comparison, the average PB value for 23 was 1.2x (Wind's unanimous forecast), giving the company a target PB of 1.2x in '23, with a target price of 6.82 yuan (previous value of 7.05 yuan based on 1.3x 22E PB), maintaining the “increase in holdings” rating.

The sharp rise in the volume and price of coal and electricity continues, and projects under construction have been put into operation one after another

The company's power generation capacity in 2022/1Q23 was -1.3%/-1.9% year-on-year to 385/105 million kilowatt-hours, and the growth rate in 2022 was lower than the overall power generation growth rate of Hebei Province (+8.5% year-on-year). In 2022/1Q23, the company's average electricity price was +30%/+3% year-on-year to 477/400 yuan/megawatt-hour (tax included). In 2022, the company's market electricity ratio reached 100%. The company is actively seeking power transactions between provinces to raise the overall electricity price level. No new units were put into operation in the company in 2022, and the installed capacity of coal power remained at 9.15 million kilowatts. At the end of 2022, coal power was under construction with an installed capacity of 700,000 kilowatts, accounting for 8% of the company's operating capacity, and is expected to be put into operation in 2023; in April 2023, the company announced that Renqiu Thermal Power Phase II and Xibaipo Power Plant Phase IV were approved, with a total installed capacity of 1.36 million kilowatts. We expect to start production as early as 2025.

New energy development is intensifying, and many can complement each other to improve the asset structure

The company wholly-owned Jineng Renewable Energy Company was established in 2022, mainly developing clean energy projects in Inner Mongolia Autonomous Region. The company purchased shares in Jianhao Company at the end of June '22 and plans to complete wholly-owned holdings to speed up entry into the photovoltaic power generation field. As of March '23, the company had put into operation 310,000 kilowatts of photovoltaic projects, and 1.05 million kilowatts of registered, ongoing and pending projects. The company shares Green Energy Technology with a 25% share ratio to participate in the research and development of hydrogen liquefaction technology; the company is actively seeking the right to participate in savings projects.

Results are expected to improve significantly in 2023, maintaining the increase in holdings rating

The fundamentals of the coal power industry have bottomed out and recovered, the company's 2023 performance is expected to improve dramatically, and the 2023-2025 performance is flexible enough. Comparable to the company's average PB in '23 (Wind's unanimous forecast), the company's current stock price corresponds to 1.05 XPb in '23. The company was given 1.2xPb for 23 years, with a target price of 6.82 yuan/share. Maintain the increase in holdings rating.

Risk warning: The increase in coal prices exceeded expectations, the number of hours used fell, and the progress of projects under construction fell short of expectations.