Event: Mindong Electric Power released its semi-annual report for 2017. the company achieved operating income of 523 million yuan, an increase of 60.94% over the same period last year; net profit belonging to shareholders of listed companies was 58 million yuan, down 27.68% from the same period last year; and basic earnings per share was 0.1558 yuan.
Comments:
Hydropower generation reduced the performance of the power sector declined. Affected by reduced rainfall in the first half of 2017, the company's hydroelectric power generation was 605.94 million kilowatt hours, down 29.73 percent from the same period last year, and water power sales were 593.42 million kilowatt hours, 29.79 percent less than the same period last year. As the installed capacity of hydropower rights and interests accounts for 76.71% of the company's equity installed capacity, even if wind power generation and electricity sales increase by 79.36% and 80.33% year-on-year, it will not change the fact that profits in the power sector have declined. The gross profit margin of the power sector decreased by 9.27 percentage points year-on-year to 54.13%.
Real estate confirmed a substantial increase in income and profits. The main body of the company's real estate business is Ningde Dongsheng Real Estate Co., Ltd. And Wuhan Chudu Real Estate Co., Ltd. In the first half of 2017, Dongsheng Real Estate "Taihe Garden" project began to recognize income, real estate sector revenue and profits increased significantly, sector gross profit margin decreased 6.06 percentage points year-on-year to 24.21%.
The capital strength of the rights issue is expected to be enhanced. The company received the approval document of the Securities Regulatory Commission on August 11, 2017, approving the non-public offering of no more than 85 million new shares. The funds raised from this non-public offering will be used to invest in Xiapu floating Eagle Island Wind Farm Project and Ningde Hubei Wind Farm Project. After raising funds, the company will further enhance its capital strength, meet the capital needs of future project investment and business development, and promote the further implementation of the company's overall development strategy.
The clean energy industry has broad prospects. Hydropower and wind energy resources are important renewable green energy, giving priority to the development of green energy is an important policy of energy development in China. According to statistics, the installed capacity of renewable energy power generation in China exceeded 600 million kilowatts in the first half of 2017, including 338 million kilowatts of hydropower and 154 million kilowatts of wind power. China's renewable energy industry as a whole is making steady progress in the direction of large-scale development. The company is the only state-owned listed company with clean energy power generation as its main business in Ningde City, mainly engaged in hydropower and wind power, and is expected to benefit from the development of clean energy industry.
Profit forecast and rating: ignore this IPO for the time being, and raise the company's EPS to 0.17,0.19,0.21 yuan in 2017-2019 in view of the recognition of revenue from real estate projects in 2017. According to the closing price of 2017-8-30, the corresponding PE is 57, 51 and 46 times respectively, maintaining the "overweight" rating.
Risk factors: a sharp drop in precipitation; lower electricity prices; lower-than-expected real estate sales; and lower-than-expected progress of new business.