occurrences
The company issued a suspension notice and intends to issue shares to purchase China Power Investment Holdings
Dongfang Energy announced the suspension of major asset restructuring. The company plans to purchase 100% of the shares of China Power Investment Group Capital Holdings Co., Ltd. by issuing shares to buy assets. Since the relevant matters are still in the decision-making stage and there is uncertainty, the company applied for suspension of trading for no more than 5 trading days.
Brief review
A regional energy company under the China Power Investment Corporation, with cogeneration as its main business
The company is a Beijing-Tianjin-Hebei regional energy enterprise under the China Power Investment Corporation. It is also the main heat supplier in Shijiazhuang. By the end of 2017, the company had a controllable installed capacity of 892,200 kilowatts, mainly the 600,000 kilowatt units of Liangcun Thermal Power; the installed capacity of clean energy was 232,200 kilowatts, accounting for 25.86% of the total installed capacity. The company's main business is cogeneration, which accounts for more than 95% of the revenue and gross profit of electricity and heat over the years. Affected by rising coal prices in recent years, the company's performance has been greatly affected. Although business conditions have improved in 2018, benefiting from favorable factors such as falloff factors in electricity price adjustments and a recovery in utilization hours, it is still at a low level.
Capital holdings are large, and financial business profits are relatively stable
China Power Investment Corporation Holdings undertakes functions such as the unified management of China Power Investment's financial assets and shares, and is responsible for the overall collaborative operation of financial enterprises. Currently, it manages and controls 8 financial or similar financial enterprises. The financial business covers insurance brokerage, trusts, futures, leasing, factoring, funds, asset management, etc. The assets are mainly distributed in the six provinces and cities of Beijing, Tianjin, Shanghai, Zhengzhou, Chongqing, and Shenzhen. According to public information, the total assets of capital holdings reached 103.62 billion yuan in 2018, achieving revenue of 10.552 billion yuan, profit of 2,788 million yuan, and a return on net assets of 9.59%. From 2016 to 2018, capital holdings' profits were $2.54 billion, $3,047 billion, and $2,788 billion respectively. Revenue maintained a compound growth rate of 50%, and profitability was relatively stable. In 18Q3, Dongfang Energy's total assets were 11.294 billion yuan and net assets were 2,757 million yuan. Overall, the various indicators of capital holdings were close to ten times the current size of Dongfang Energy.
The Group's asset reform has accelerated, and the company has ushered in new opportunities for development
China Power Investment Group, the controlling shareholder of the company, is one of the top five power generation groups in China. Previously, the asset securitization rate was at a low level. This asset restructuring may indicate that the China Power Investment Group's asset reform process will accelerate. The company was previously limited by its own asset size and profitability level, and its endogenous growth capacity was relatively weak. If asset restructuring is successfully achieved with capital holdings, the company will become a large-scale financial enterprise dominated by diversified finance and complemented by efficient power generation, and future development will usher in new opportunities.
First coverage, buy rating
Considering the stability of the company's main business, the decline in coal prices is expected to bring greater flexibility to the company's performance. Without considering the impact of major asset restructuring, we forecast that the company's 2018-2020 EPS will be 0.14, 0.242, and 0.31 yuan respectively, covered for the first time and given a purchase rating.