Investment suggestion
The current share price is close to our target price, we maintain the target price of HK $2.6, corresponding to 7 times 2017 price-to-earnings ratio, and downgrade Jingneng clean energy rating from "recommended" to "neutral".
Reason
The net profit of returning home in the first half of 2016 was slightly lower than expected. The company's home net profit in the first half of 2016 increased by only 4 per cent to 1 billion yuan compared with the same period last year. By adding back the fair value change loss of 86 million yuan of financial assets and deducting 1.9 million yuan of foreign exchange earnings, the recurrent net profit increased by 22% to about 1.1 billion yuan compared with the same period last year. Profits attributable to the joint venture company fell 47 per cent year-on-year to 84 million yuan, mainly due to a reduction in Beijing Jingneng International Power Generation. In the first half of the year, only 38 megawatts of new photovoltaic units were installed and put into production. Natural gas power generation increased by 6% year-on-year, hydropower 16%, photovoltaic 14%, while wind power generation was basically flat.
The number of hours of power generation utilization may be difficult to meet the annual target. Even with the cold weather in the first quarter, the company used only 1934 hours of natural gas power generation in the first half of the year, and it may be difficult to achieve the 4500-hour guidance for the whole year. The number of hours of wind power utilization fell by about 40 hours to 1059 hours compared with the same period last year. The management is of the view that the abandonment of wind power has not improved significantly in the first half of the year, and our expectations for the number of hours of wind power utilization in the second half of the year are relatively conservative.
Growth prospects. Management expects the company's installed capacity to reach 8067MW by the end of 2016, which means that new installations exceeding 780MW will be put into production in the second half of the year (that is, an increase of 11% over the end of the first half of 2016). We expect the profit contribution of the new installation to be reflected in 2017. We currently expect the company's earnings to grow by 7% this year and 15% next year. In the long run, the promotion of Beijing-Tianjin-Hebei integration and the 2022 Beijing Winter Olympic Games may bring long-term growth opportunities for the company.
Profit forecast and valuation
Slightly cut the 2016 earnings per share forecast by 5% to 0.3 yuan, maintaining the 2017 earnings per share forecast of 0.34 yuan.
Risk.
Beijing cogeneration gas power generation approved utilization hours down; alternative energy and foreign power competition; abandoned wind situation can not be improved.