Listed companies under the Three Gorges Group, equity incentives show confidence in development. The company is an important listing platform for the Three Gorges Group and is deeply involved in various electricity supply, coal trade, and heat supply businesses in Hubei. The types of power generation are diverse and complete. Hydropower and thermal power are the main sources of power generation, and new energy generation is growing rapidly. In order to deepen the reform process of state-owned enterprises, the company recently actively prepared a restricted stock incentive plan. The incentive plan covers the company's management and core technical personnel, etc. The requirement to lift the sales restrictions is that 2022-2024 ROE should not be less than 6.8%, 6.95%, 7.12%; the revenue growth rate should not be less than 15%. We believe that this incentive plan will help stimulate management's subjective activism to preserve and increase the value of state-owned assets.
The largest hydropower plant in Hubei Province, with installed capacity concentrated in the Qingjiang River Basin
The total installed hydropower capacity of the company was 4,6573 million kilowatts, of which 4,2013 million kilowatts were installed in Hubei Province, accounting for 27.44% of the total installed capacity of hydropower in Hubei Province (excluding the Three Gorges Power Station). The company's hydropower installations in the province are mainly concentrated in the Qingjiang River Basin, including large-scale hydropower stations such as water distribution and riverbed rock, which have certain joint scheduling and operation capabilities. At the beginning of 2022, the country's rainfall was higher than in the same period in previous years. Since January-May, incoming water from the Qingjiang River Basin has been 87% more abundant than the multi-year average. We judge that 2022 is likely to be a prosperous year, and the company's hydropower profits this year are likely to improve compared to last year.
The coal power reform is deepening at an accelerated pace, and Changxie Coal is expected to lock in costs. The inflection point of thermal power is already here
Affected by soaring coal prices in 2021, thermal power companies generally lost heavily. In October 2021, the NDRC issued a document deepening the market-based reform of coal power, setting the scope of electricity price increases to be relaxed from 10% to 20%, with no upward restrictions on energy-intensive enterprises. Under the tight electricity supply and demand situation, Hubei and many other provinces have seen electricity prices rise close to 20% in 2022. On the coal side, NDRC Document No. 303 officially came into effect on May 1, 2022. All coal for thermal power will be used to lock down Changxie coal and limit the coal price range. We believe that deepening the market-based reform of coal power will help enhance the ability of coal power companies to withstand fluctuations in coal prices, and the company's coal power profitability is expected to be restored in 2022.
Demand for electricity and energy storage is high, pumped storage is a good opportunity to maintain the “buy” rating
The dual carbon target guides the supporting energy storage systems for new energy power generation, and future demand for pumped storage is outstanding. As a comprehensive energy platform in Hubei Province, the company has now mastered a number of exemplary pumped energy storage projects in the province. After the reform of the two-tier electricity price system, the profit ceiling for pumped storage will open up, and at the same time, the widening gap between peak and valley electricity prices will continue to increase corporate profits. We are optimistic about the restoration of the profitability of thermal power companies in the short term, as well as the new growth impetus brought about by the rapid growth of the long-term new energy business and the pumped storage business. We expect the company's revenue from 2022 to 2024 to be 23.842 billion yuan, 27.652 billion yuan, and 28.481 billion yuan respectively, and net profit of 2,819 billion yuan, 3.169 billion yuan, and 3.758 billion yuan respectively, giving the company a “buy” rating.
Risk warning: risk of fluctuations in incoming water from the Qingjiang River Basin; risk of fluctuations in electricity prices in the market; risk of rising fuel costs such as coal and natural gas; risk of production safety