Incidents: According to the annual report, in 2018, the company achieved revenue of 9.59 billion yuan, an increase of 30.7% over the previous year; total profit of 0.4 billion yuan, an increase of 103.8% over the previous year; the net profit of Gumo was 0.6 billion yuan, an increase of 105.1% over the previous year; after deduction, the net profit of Gumo was 2.6 billion yuan, an increase of 78.3% over the previous year, and EPS turned a loss into a profit, in line with expectations.
The increase in electricity prices combined with the increase in utilization hours helped turn the performance into a profit: according to the announcement, in 2018, the company achieved power generation capacity of 23.90 billion kilowatt-hours, an increase of 22.3% over the previous year; feed-in electricity was 22.18 billion kilowatt-hours, an increase of 22.4% over the previous year; and feed-in electricity prices (tax included) increased 8.0 yuan/megawatt-hour year on year. Meanwhile, in 2018, the company confirmed asset impairment losses of -4.84 million yuan, a decrease of 101.3% over the previous year; confirmed investment income of 0.6 billion yuan, an increase of 160.5% over the previous year. In terms of utilization hours, the number of hours used by the company in 2018 was 4217 hours, an increase of 746 hours over the previous year. The increase in electricity prices is combined with the increase in the number of hours used to jointly drive the company's performance to turn a loss into a profit.
The leading thermal power installation company in Hunan. The company's unit is located in the Hunan Electricity Consumption Load Center: As a leading thermal power installation enterprise in Hunan Province, the company has an advantage, with thermal power installations accounting for 29.3% of the province's market share. According to the announcement, by the end of 2018, the company had an installed capacity of 5.69 million kilowatts, including 5.24,000 kilowatts of thermal power, 176,000 kilowatts of hydropower, and 274,000 kilowatts of new energy. The distribution of power plants belonging to the company is quite reasonable. Among them, the Xiangtan and Zhuzhou power plants are located in the Changzhu Tan load center area, and the Leiyang power plant is located in the Shonan load center area, which is beneficial for the company to obtain planned electricity capacity. Due to poor coal resources in Hunan Province and market changes in coal mine production and reduction in production and reduction in production in the province, coal mainly comes from long-distance transportation from other provinces. Fuel costs remain high, and operating performance is highly flexible to coal prices. With the improvement of the national coal supply and demand situation in 2019, the company is expected to fully benefit from the decline in coal prices.
The Menghua Railway is expected to be completed and opened to traffic in the second half of 2019, which is expected to reduce coal freight by 30-50 yuan/ton. As a national strategic transportation channel for coal transportation from north to south, the Menghua Railway connects the Mongolian, Shaanxi, Ganning Energy “Golden Triangle” and central China regions such as Exianggang, with a total mileage of 1,815 kilometers and a design capacity of 200 million tons/year, of which the initial operating capacity is 0.5-100 million tons. It is expected to open to traffic in the second half of 2019. According to the feasibility study report of the Menghua Railway, the comprehensive coal freight rate is 0.18 yuan/ (tonkm), which is slightly higher than the national railway coal freight rate of 0.1551 yuan/ (tonkm), but since the Monghua Railway has a distance advantage over existing transportation routes, it is expected that freight rates will be reduced by 30-50 yuan/ton. Coal supply-side reforms have led to a sharp reduction in coal production capacity in central China, a sharp increase in transfers from other provinces, and the electricity and coal price index in Hunan Province is significantly higher than the national average price. The commencement of operation of the Menghua Railway will help solve the double problem of “high procurement costs and high transportation costs” in central China.
Investment advice: increase holdings - A investment rating, target price of 4 yuan for 6 months. We expect the company's revenue growth rate in 2019-2021 to be 15%, 7%, and 6% respectively, and net profit of 141 million yuan, 292 million yuan, and 385 million yuan respectively, corresponding to price-earnings ratios of 44.6 times, 21.5 times, and 16.3 times.
Risk warning: Coal prices continue to be high, electricity prices are at risk of falling, and wind power projects are falling short of expectations.