1H20 performance is slightly higher than we expected.
The company announced 1H20 results: revenue 13.06 billion yuan, year-on-year-5.7%; return to the mother net profit of 1.17 billion yuan, year-on-year + 20.1%, slightly exceeding our and market expectations.
The decrease of unit combustion cost and the partial turnround of Henan units led to the high growth of thermal power performance. In the first half of the year, due to the impact of the epidemic on the electricity demand of the whole society and the squeeze of new energy output, the company's thermal power units sold electricity by-7.4% compared with the same period last year. On the other hand, the proportion of market electricity decreased, and the average feed-in price rose slightly by 0.13 yuan / kWh compared with the same period last year. The division's net profit surged 305.7 per cent year-on-year to 360 million yuan, benefiting from a 6.8 per cent drop in unit combustion costs in the first half of the year. In addition, through continuous governance, the company has greatly reduced losses and even reversed losses of loss-making thermal power plants in Henan Province, boosting profits.
The rapid release of production capacity contributes to the profitability of the renewable energy sector. The company added 66.7MW / 508.7 MW of wind power and photovoltaic installed capacity in the first half of the year, driving year-on-year electricity sales + 27.7% ash 39.1%, and segment net profit + 68.1% amp 16.7% to 440 million yuan / 340 million yuan. 1H20, wind power and photovoltaic contributed 40.8% of the net profit, and the cumulative installed capacity accounted for 20.6% (combined installed caliber).
Hydropower is restricted by the lack of water in the basin, and electricity sales fell by 10.8% in the first half of the year, in line with the trend of the industry. The feed-in price fell 24.1 yuan per kilowatt-hour compared with the same period last year, resulting in a 18.4% year-on-year drop in segment net profit to 1.06 billion yuan.
Financial expenses are higher than the same period last year, pay attention to the follow-up development. The company's financial expenses in the first half of the year increased by 9.1% to 1.68 billion yuan compared with the same period last year, which is contrary to the trend that the industry generally fell by more than 10%. On the one hand, it is restricted by the increase in the overall scale of the company's interest-bearing liabilities (capital expenditure increased by 3.03 billion yuan to 8.22 billion yuan in the first half of the year compared with the same period last year. The increment mainly comes from the construction of clean energy projects), paying attention to the follow-up capital expenditure plan and financing interest rate control measures.
Trend of development
Since June, the water margin has improved, and the disadvantageous factors of electricity price compared with the same period last year have been eliminated. Guangxi and Hunan hydropower units where the company's hydropower units are located achieved positive year-on-year growth rates in June and July, respectively, considering that the decline in electricity prices in the first half of the year was mainly due to the reduction of hydropower grid electricity prices in the province by the Hubei Provincial Development and Reform Commission since July last year, and the unfavorable factors in the second half of the year are expected to be lifted.
Actively explore new energy development opportunities, photovoltaic inexpensive large base, distributed comprehensive energy service two-pronged approach. By the end of last year, the company had reserved 2.1 gigawatts of pre-scenery project resources.
In the first half of this year, the company realized part of the production of Liaoning Chaoyang 500MW photovoltaic parity project, laying the experience and foundation for the follow-up parity project development. In addition, the company carried out three comprehensive wisdom projects in Beijing in the first half of the year to explore the business model of integrated energy services on the distributed side, such as photovoltaic storage and charging, source grid load, and explore the possibility of diversified development of photovoltaic in the affordable era.
Profit forecast and valuation
Keep profit forecasts for 2020 and 2021 unchanged. The current share price trades at 6.0cm in 2020 / 21 at a price-to-earnings ratio of 4.9. Maintain an outperform industry rating and a target price of HK $2.23, corresponding to 8.9 times 2020 price-to-earnings ratio and 7.4 times 2021 price-to-earnings ratio, with 49.7% upside compared to current share prices.
Risk.
Incoming water fell short of expectations, electricity demand fell less than expected, and coal prices fell less than expected.