Event: Ganeng shares released its 2018 annual report. In 2018, the company's operating income was 2.57 billion yuan, up 20.8% over the same period last year; the net profit returned to the mother was 190 million yuan, up 1046% over the same period last year; and the net profit from non-return was 170 million yuan, up 2.5% from the same period last year. The company's performance is in line with expectations.
The growth rate of electricity is considerable, and fuel costs affect profit repair: as the profit and loss of asset disposal generated by the transformation of the Fengcheng II unit of the company has a greater impact on the non-recurrent profit and loss in 2017, due to the base effect (the company's non-recurrent profit and loss in 2017-150 million yuan) the company's 2018 net profit increased by 1046% compared with the same period last year, deducting 2.5% from the same period last year. Benefiting from the improved demand for electricity downstream, the company generated 7.45 billion kilowatt-hours of electricity in 2018, an increase of 18.1% over the same period last year. Affected by the tail-warping factor of the electricity price adjustment in 2017, the company's average on-grid electricity price excluding tax in 2018 was 0.36 yuan / kWh, an increase of 2.5% over the same period last year. Affected by coal prices, the company's fuel cost increased by 26.0% in 2018 compared with the same period last year, exceeding the growth rate of electricity generation; the company's comprehensive gross profit margin was 11.8%, down 0.6% from the same period last year.
The benefit target of Menghua Railway: restricted by the coal producing area, transport capacity and other factors, the coal supply situation in central China is generally tight, and the thermal coal price index in Jiangxi Province is generally higher than the national average. We believe that the commissioning of the Meng-Hua Railway will change the pattern of coal supply and demand in Jiangxi. According to our estimates, the company's performance is flexible and the fall in coal prices will significantly boost profitability.
Fengcheng Phase III project is expected to restart: the company's Fengcheng Phase III power plant project (designed to install 21 million kilowatts) is in a state of shutdown affected by the "11.24" safety accident, and the project progress is 16.4% by the end of 2018. The company announced on 2019-03-20 that the Fengcheng Phase III Power Plant had been removed from the "blacklist" of joint punishment for dishonesty in safe production, and only one of the 49 supporting documents for resumption of work (issuance of construction permit for smoke tower construction) was being processed. Look forward to the early resumption of Fengcheng Phase III project.
Profit forecast and investment rating: according to the company's operating conditions and the changes in coal prices, the profit forecasts for 2019 and 2020 are lowered and raised respectively. It is estimated that the company's net profit for 2019 and 2020 will be 2.40 yuan and 340 million yuan respectively (2.70 yuan and 320 million yuan before adjustment). The projected net profit for 2021 will be 350 million yuan. It is estimated that the EPS of the company from 2019 to 2021 is 0.25,0.34,0.36 yuan respectively, and the corresponding PE is 22,16,16 times respectively. We are optimistic about the performance flexibility brought by the commissioning of Meng-Hua Railway and maintain the "overweight" rating.
Risk tips: the feed-in electricity price is lower than expected, the power demand is lower than expected, the production progress of Fengcheng Phase III project is lower than expected, the operation progress of Menghua Railway is slower than expected, the risk of rising coal prices, and so on.
