Wind power generation increased by 28.2% in the first three quarters of 2019 compared with the same period last year.
The company has just released its electricity generation figures for September 2019. Total equity generation rose 7.6 per cent year-on-year to 287GWh, with wind and solar power rising 7.8 per cent and 6.7 per cent to 251GWh and 36GWh, respectively. In other words, the company's total equity power generation in the first three quarters of 2019 increased by 26.2% year-on-year to 3236 GWH, while wind and solar power generation rose 28.2% and 13.4% to 2856GWh and 381GWh, respectively. The year-on-year growth rate of wind power generation in the first three quarters of this year was lower than the 68.0% year-on-year growth rate in the same period in 2018, because the company was successfully transformed into a wind power generator last year and had a significantly low base in 2017.
Expected installed capacity continues to rise
The company continues to expand its operations through the sale of inefficient projects and acquisitions of high-quality projects. We expect the installed capacity of equity wind power to increase year-on-year net 300MW and 400MW (15.3% and 17.8%) to 2263MW and 2663MW in 2019 and 2020, respectively.
The privatization of Huaneng New Energy may enhance the market's attention to the wind power sector. Huaneng Group recently proposed to privatize the H shares of Huaneng New Energy (bought by 958 HK;; target price of HK $3.10), which can raise the market's attention to the wind power sector. We think this is beneficial to the valuation of the wind power sector.
Valuation on the low side
Based on the actual power generation figures and our views on the company's installed capacity growth, we estimate that the company's shareholder net profit will increase by at least 29.5% and 30.8% year-on-year in 2019 and 2020 to RMB 650 million and 850 million, respectively. Based on the closing price on October 8, 2019, the company's 2020 price-to-earnings ratio is 3.5 times. The company is undervalued.
Risk tips: (1) grid-connected electricity price has dropped sharply; (2) the risk of accounts receivable has deteriorated; (3) delays in project development