Events:
The company released its annual report in 2019. In 2019, the company achieved operating income of 7.366 billion yuan, an increase of 12.24% over the same period last year, and its net profit was 573 million yuan, an increase of 174.57% over the same period last year, in line with Shenwan Hongyuan's expectations.
The company publishes its quarterly report for 2020. In the first quarter of this year, the company achieved operating income of 1.218 billion yuan, down 40.58% from the same period last year, and its net profit was 30.94 million yuan, down 86.05% from the same period last year, in line with Shenwan Hongyuan's expectations.
Main points of investment:
In 2019, the growth rate of electricity consumption in Hubei Province is higher than the national average, the efficiency of thermal power units in the company is greatly improved, and the changes in coal and electricity prices are increasing the income and profits of the good company. Hubei Province, as an important province of the Yangtze River economic belt, benefited from the landing of 5G and other emerging energy-consuming industries, with a power consumption growth rate of 6.9% in 2019, 2.4 percentage points higher than the national average. At the same time, the inflow of water from the mainstream of the Yangtze River and the Qingjiang River basin in Hubei Province is 10 to 30% less than the same period last year, creating growth space for thermal power generation. The company increased profits by 1.97,2.01 and 138 million yuan respectively due to the increase in electricity generation, the decline in coal prices and the increase in the average price of electricity sales. Due to the bankruptcy liquidation of the subsidiary Guodian Changyuan Henan Coal Industry, the company's performance was affected by about-64.28 million yuan. The company's net profit after deducting non-return increased by 195.85% compared with the same period last year.
Hubei Province was seriously affected by the COVID-19 epidemic, and its electricity generation dropped sharply in the first quarter. In the first quarter of 2020, the electricity consumption of the whole society in Hubei Province decreased by more than 20% compared with the same period last year. The superimposed hydropower and water situation was better in the first quarter, with an increase of 59 hours in hydropower utilization hours compared with the same period last year, squeezing the power generation space of the company's thermal power units, and the company's online electricity consumption decreased by 41% in the first quarter compared with the same period last year, dragging down business revenue by 40.58%. As both the arrival and consumption of thermal coal have dropped sharply, the inventory of thermal coal in Hubei Province has maintained a high level, which can meet the consumption of more than 38 days, so the price of thermal coal in Hubei Province is not expected to fall sharply with the national market coal prices in the first quarter. As of April 28, data from the Hubei Provincial Development and Reform Commission showed that the province's daily electricity consumption decreased by only-2.72% compared with the same period last year. It is expected that with the resumption of production and work, the positive growth of electricity consumption will resume in the second quarter, and the unit utilization level of the company is expected to gradually return to normal.
Taking into account the continued decline in power coal prices this year, the company's profitability is still expected to improve after the power generation level returns to normal.
The influence of Hao-Ji Railway on the coal transportation pattern in Hubei Province has not yet appeared, and the trend of concentration in the three westerns is obvious, and the long-term coal cost of the company is still expected to decline. The whole line of Hao-Ji Railway was opened in September 2019, but restricted by the short opening time and other factors, the impact on the coal transport pattern in Hubei Province has not yet been shown. Coal procurement in Hubei Province is concentrated in the four traditional coal supply provinces of Shanxi, Shaanxi, Henan and Anhui, accounting for 51.7%. Among them, the coal supply to Hubei has declined year by year, and the trend of high concentration of coal production to the "Sanxi" area is obvious. With the increase of transport capacity, Hao-Ji Railway will eventually play a role in saving freight. At present, the freight cost of Shaanxi-Inner Mongolia coal from the sea to Hubei is more than 300 yuan, and we estimate that the transportation cost can be reduced by 60-80 yuan per ton through the Hao-Ji railway. The company and Shenhua Group belong to the national energy group, and its power plants are adjacent to Haoji Railway, which is expected to be the first to enjoy the dividends brought about by lower freight rates.
Profit forecast and valuation: with reference to the first quarterly report, we downgrade the forecast of the company's 2020-2021 return net profit of 4.55 and 9.04 (before the adjustment is 8.72, 941 million yuan). It is estimated that the net profit of homing in 2022 will be 954 million yuan. Corresponding to the current stock price PE is 10, 5, 5 times. In 2019, the company plans to pay a cash dividend of 0.16 yuan per share, with a dividend yield of 3.87%.
The company maintains a "buy" rating as the most definitive target for the commissioning of Haoji Railway.