Incident: On March 31, Mindong Electric Power released its 2017 annual report. In 2017, the company achieved operating income of 901 million yuan, an increase of 39.66% over the previous year; net profit attributable to shareholders of listed companies was 22.5889 million yuan, a decrease of 14.21% over the previous year; and basic earnings per share were 0.06 yuan.
Comment:
The reduction in precipitation affected power generation, and the gross margin of the main business fell sharply. During the reporting period, due to the decrease in precipitation, the amount of electricity sold by the company's hydropower company was drastically reduced compared to the same period last year. In 2017, the company completed 1,148.99 million kilowatt-hours of hydroelectric power generation, a decrease of 27.96% over the same period last year; completed hydroelectric sales volume of 1,125.32 million kilowatt-hours, a decrease of 27.99% over the same period last year. Although benefiting from the full commissioning of the wind power project of Aerospace Minjian New Energy (Xiapu) Co., Ltd., the company's wind power sales increased by 45.63% and 47.62% respectively, but the installed capacity of wind power accounts for only 23.3% of the company's equity installed capacity. As a result, the company's power sector revenue still declined to 486 million yuan, a year-on-year decrease of 19.70%, and gross margin also fell 14.06 percentage points to 43.06%. Furthermore, the company's real estate sector revenue surged 2,199.61% over the same period last year to 391 million yuan. Although gross margin fell sharply by 36.07 percentage points, it still made up for the impact of the decline in power sector performance to a certain extent.
The deployment of wind power is progressing steadily, and new energy projects are being actively expanded. The company has taken advantage of Ningde City's favorable wind power resource conditions to solidly push forward wind power project development. At present, the Xiapu Floating Eagle Island Wind Power Project (installed capacity 48MW) was fully put into operation at the end of March 2018. The total installed capacity of wind power will increase by about 50%. We expect it to have a positive impact on the company's future performance. The Hubei Wind Farm Project has also completed the work of capping the main structure of the booster station's main control complex and annex buildings, aiming to achieve the first batch of fans connected to the grid by the end of 2018. In addition, the company formed a joint venture with Xia Tungsten Renewable Energy Materials Co., Ltd. to establish Ningdexia Tungsten Renewable Energy Materials Co., Ltd., with a shareholding ratio of 30%. Ningdexia Tungsten New Energy Materials Co., Ltd. plans to build a power lithium-ion cathode material project with an annual output of 20,000 tons in Ningde. It is currently under construction. As the only state-owned listed company in Ningde with clean energy power generation as its main business, the company is actively optimizing its own industrial structure and is full of momentum for development.
The fixed increase in stocks has been completed, and there are plenty of funds for future development. In November 2017, the company completed a non-public offering of 84,951,455 shares. This was the first time since the company went public that it was refinanced through the capital market, and the shareholding structure was further optimized. This non-public offering of shares raised a total of about 700 million yuan to invest in the Xiapu Fuying Island Wind Farm Project and the Ningde Hubei Wind Farm Project. This not only greatly enhanced the company's capital strength, but also consolidated and strengthened the foundation for the development of the company's main power business, thus ensuring the sustainable development of the enterprise.
Profit forecast and rating: Based on the company's current share capital, we expect the company's 2018-2020 EPS to be $0.13, $0.15, and $0.16, maintaining the “increase in holdings” rating.
Risk factors: A sharp drop in precipitation; lower electricity prices; real estate sales fell short of expectations; progress in developing new businesses fell short of expectations.