The 4Q22 performance is expected to recover, and the target price will be raised slightly
We believe that the company's 4Q22 performance is expected to recover, thanks to improved ocean wind resources, and that the two major high-quality assets under the majority shareholders (Pinghai Offshore Wind Power Phase III and Yongtai Savings) are expected to be injected one after another to drive the company's medium- to long-term performance growth. Following the second batch of offshore wind power competition in Fujian Province, we are optimistic about the company's location advantage. Maintaining the profit forecast, the EPS is expected to be 0.44/0.49/0.52 yuan in 22-24. Ruoping Bay Phase III was injected in '23, and the company's net profit CAGR for 23-24 (37%) was higher than the average value of comparable companies (20%).
Comparable to an average PE value of 14x in '23 (Wind's unanimous expectation). Under asset injection expectations, the company's performance growth potential is outstanding. The company was given 16xPE in '23, with a target price of 7.84 yuan (the previous value of 7.48 yuan was based on 17xPE in '22). Maintain buy ratings.
The Fujian 4Q influx situation may improve year-on-year. The company's short-term performance can be expected to recover by the end of September. Wind power in Fujian Province accounts for 84% of the company's total installed capacity (31% sea wind +53% land wind), and wind power and biomass in Heilongjiang Province account for 14%. Considering that the company has put no new projects into operation recently, the influencing situation in Fujian Province is the core variable affecting the company's performance. According to data from the National Bureau of Statistics, in January-October '22, wind power generation in Fujian Province was +60.1% year-on-year, up 3.2pp from January-September; the number of hours of wind power utilization was +14.9%, up 1.5 pp from January-September, mainly due to a year-on-year improvement in wind conditions in October. From October 1 to November 7, the temperatures in the three cities of eastern Fujian were relatively low. It is expected that the overall wind conditions for 4Q22 were better than in the same period last year. We are optimistic that the company's 4Q performance will increase year over year.
The third phase of Pinghai Bay will soon meet the injection conditions. The majority shareholder Fujian Investment Group, promised during the major asset restructuring of Zhongmin Energy during the major asset restructuring of Zhongmin Energy in 2019. The prerequisites for starting asset injection for related assets under the group include: 1) stable operation; 2) achieving profit within a full fiscal year; 3) no compliance issues. The third phase of the Pinghai Bay offshore wind power project under the group was put into operation at the end of the 21st. Zhongmin Offshore Power 2021/1H22 in the same area achieved non-net profit of 38,210 million yuan, and the third phase of the project is expected to be profitable for the whole year. If the results of the subsidy verification are implemented, the third phase of the project will have the prerequisites for injection. The Group's Yongtai pumping project has installed 4 units with a total of 1.2 GW. The first unit was put into operation in August, the second unit was put into operation in October 2 months ahead of schedule, and the 3/4 unit is scheduled to be put into operation in the first half of 2023.
Following the second batch of offshore wind power competition in Fujian, the company's location advantage is still in Fujian's “14th Five-Year Plan” plan to add 4.1 GW of offshore wind power connected to the grid and develop 10.3 GW. Electricity prices were lower as a result of the first batch of auctions in July this year, which raised market concerns about the yield of new offshore wind power projects. The second round of competition is imminent. Considering the objective needs of industrial development (project yield should not be lower than financing costs), we expect to reverse the market's excessive pessimism about offshore wind power development in Fujian Province. The investment group, which is the majority shareholder of the company, assumes an important role in livelihood projects and infrastructure construction in Fujian Province, and is expected to provide the company with a location advantage in obtaining new projects in the future.
Risk warning: Construction of new projects is lagging behind; subsidy verification results fall short of expectations; acquisition of new projects falls short of expectations.