Summary of the report
Company overview
The company is the only energy operator in Tianjin Port Free Trade Zone (seaport), engaged in cogeneration of steam, together with electricity, heating and cooling, and is also the only energy operator in Tianjin engaged in the distribution of electricity.
The company's cogeneration technology can improve thermal efficiency and reduce fuel costs as much as possible, which is more environmentally friendly than traditional energy production plants.
In the energy production and supply business, the company's coal-fired thermal power plant uses back-pressure cogeneration units, installed 30MW, produces electricity and sells electricity to the State Grid Tianjin Power Company, and provides steam, heat and cold to industrial and commercial customers in the Tianjin Port Free Trade Zone (seaport). In the sales and distribution business, the company buys electricity from the Binhai Branch of State Grid Tianjin Electric Power Company, converts the voltage 35KV into 10KV, and then distributes it to the end users of Tianjin Port Free Trade Zone (seaport) through energy facilities and power grid. The company provides other value-added services to customers in Tianjin Airport Economic Zone and Tianjin, including power distribution facilities construction services and industrial facilities operation and maintenance services, and distributes power components to Tianjin customers.
In 2017, the company's revenue and net profit were 452.5 million RMB and 30.3 million RMB respectively, an increase of 4.5 per cent and a retrogression of 44.2 per cent, respectively. The decline in the company's net profit in 2017 was mainly due to the decline in gross profit and gross profit margin. The cost of coal is the main sales cost of the company, and the average price of coal purchased by the company in 2017 increased by 40.9% compared with the same period in 2016.
Industry status and prospects
Tianjin's electricity consumption increased from 69.5 TWh in 2011 to 80.8 TWh CAGR3.1% in 16 years.
Thermal power is the main mode of power generation in Tianjin, accounting for 98.1% of the total electricity. The efficiency of cogeneration is supported by policies. it is estimated that in 2020, Tianjin cogeneration heating is expected to reach 65%, and the installed capacity is expected to reach 22GW. About 15 energy operators in Tianjin are engaged in cogeneration.
Tianjin power distribution enterprises: national Grid Tianjin Electric Power Company, Tianjin Taida Electric Power and Tianbao Energy, Tianbao Energy is the only company engaged in power distribution in Tianjin Port Free Trade Zone (seaport).
Advantages and opportunities
The company is the only energy operator in Tianjin Port Free Trade Zone (seaport); cogeneration and power conversion technology provide customers with cost-effective and high-quality energy services; maintain a strong relationship with the State Grid
Weakness and risk
Customers who rely on Tianjin Port Free Trade Zone (seaport) for energy supply; coal prices fluctuate.
Valuation
In 2017, the company made a net profit of 30.3 million RMB, which was reversed by fluctuations in coal prices.
After listing, the market capitalization of the company is HK $2.68-293 million, with a fully diluted price-to-earnings ratio of 2017. We believe that the company is small, the business expansion is expected to be slow, and the valuation should be discounted compared with the leading thermal power companies in Hong Kong. We think the valuation is reasonable and give IPO a special rating of "5".
