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Shanghai Electric Power released its report for the third quarter of 2022

Shanghai Electric Power released its report for the third quarter of 2022. The company achieved revenue of 27.828 billion yuan in the first three quarters of 2022, an increase of 25.54% over the previous year; realized net profit of 221 million yuan, a decrease of 50.99% over the previous year; realized net profit of 73 million yuan after deducting non-return to the mother, a decrease of 79.52% over the previous year; the weighted average ROE was 0.82%, a decrease of 1.32 percentage points over the previous year; and the basic EPS was 0.0458 yuan/share. 2022Q3 achieved operating income of 11.678 billion yuan, an increase of 48.77% over the previous year; it achieved net profit of 269 million yuan to its mother, turning a loss into a profit on a year-on-year and month-on-month basis.

Brief review

A single quarter's profit turned a loss into a profit from a month-on-month period. The company contributed increasing profits from overseas power plants to China Power Investment's listing platform, and the power sales business was the company's core business.

The company achieved operating income of 27.828 billion yuan in the first three quarters of 2022, an increase of 25.54% over the previous year; the net profit achieved was -221 million yuan, a decrease of -50.99% over the previous year. This was mainly due to a sharp increase in the unit price of discounted coal compared to the same period last year, which led to a decrease in net profit for the current period compared to the same period last year. Operating cash flow increased 104.20% year-on-year, mainly due to the sharp rise in renewable energy subsidy electricity bill recovery compared to the same period last year, which led to an increase in cash received from products sold in the current period. 2022Q3 achieved net profit of 269 million yuan to its mother, turning a loss into a profit on a year-on-year and month-on-month basis. On the one hand, the Q3 epidemic has improved, domestic electricity demand has picked up, and thermal power output has significantly increased to dilute fixed costs. We judge that Q3 domestic thermal power performance is likely to reduce losses month-on-month; on the other hand, the company's Turkey's Hunutlu coal-fired power generation project Unit 1 is running steadily, and Q3 released profits to help the company's performance improve month-on-month.

Domestic thermal power generation capacity improved markedly month-on-month in the third quarter. Market electricity growth was strong. In the first three quarters of 2022, the company completed a combined caliber power generation capacity of 46.527 billion kilowatt-hours, an increase of 3.88% over the previous year. Among them, coal power and gas power generation were 306.96 and 51.91 respectively, with year-on-year changes of -1.58% and +9.64%. In Q3, domestic coal power completed 10.94 billion kilowatt-hours of feed-in power in a single quarter, an increase of 4.94% over the previous year and an increase of 55.42% over the previous quarter; gas completed 2.44 billion kilowatt-hours, an increase of 16.23% over the previous year and an increase of 92.43% over the previous month. It was mainly due to the increase in thermal power output due to high Q3 high temperatures driving consumer demand and the weakening of the impact of the epidemic, but due to the decline in the impact of the epidemic, the overall cost of coal combustion remained high. We judge that domestic thermal power profits improved limited month-on-month. In the first three quarters of 2022, the company's market traded and settled electricity volume of 29.801 billion kilowatt-hours, an increase of 70.66% over the previous year. Among them, the amount of electricity traded directly was 17.94 billion kilowatt-hours, and the electricity purchased on behalf of the power grid was 10.363 billion kilowatt-hours, which were the two main forms of transactions. The strong increase in the volume of electricity traded in the company market was compounded by the impact of Turkey's high electricity prices. The average feed-in tariff price of the company (tax included) in the first three quarters of 2022 was 0.61 yuan/kilowatt-hour, an increase of 22% over the previous year.

The share of clean energy installed has steadily increased. As of 2022/Q3, the company's holding installed capacity was 19982,900 kilowatts, and clean energy accounted for 54.02% of the installed capacity. It has already completed the target of no less than 54% of the installed capacity of clean energy during the first period of equity incentives. The installed capacity of the company's coal power, gas and electricity, wind power, and photovoltaics was 918.8, 286.62, 388.41, and 4,047,700 kilowatts respectively, accounting for 45.98%, 14.34%, 19.44% and 20.24% respectively. The increase in installed capacity led to an increase in power generation. In the first three quarters of 2022, the company's wind power and photovoltaics completed 6.409 billion kilowatt-hours of feed-in electricity and 3,966 billion kilowatt-hours respectively, up 14.27% and 34.33% year-on-year.

In Q3, the company's wind power and photovoltaic completed feed-in electricity volumes of 19.9 billion kilowatt-hours and 1.55 billion kilowatt-hours respectively, up 40.49% and 37.54% year-on-year, with month-on-month changes of -16.43% and +6.03%. In addition to the continuous expansion of domestic green power installations, the company's overseas green power has also continued to be put into operation. In September, 76,500 kilowatts of the first phase of the photovoltaic project in Fukushima in Japan were put into operation. The estimated annual power generation capacity is 82 million kilowatt-hours. The feed-in electricity price including tax is 44 yen/kilowatt-hour (equivalent to RMB 2.2 yuan/kWh). In October, the first batch of rooftop photovoltaic modules for Turkey's Hunutlu Hybrid Power Station photovoltaic project was successfully connected to the grid. The planned PV installation capacity of the project is 100 MW, and the annual power generation capacity of the project after completion is 160 million kilowatts. The power generation capacity of the photovoltaic power plant is used for personal use. There is no need to build additional booster stations and transmission systems, making full use of the advantages of the hybrid power plant “self-use, surplus electricity to the Internet”, saving investment in photovoltaic power plants, reducing the power consumption rate of the plant, and improving the economic efficiency of power plant operation. At the same time, it is also the first step in the transformation of the Hunutlu Power Plant from a single thermal power source to a multi-energy hybrid power plant. The company is firmly transforming green power at home and abroad, and the scale of the new energy power generation business continues to expand, which will provide impetus for the company's long-term growth.

Profits from the Turkish project are expected to be further released. Expected performance for the fourth quarter continues to improve month-on-month, maintaining the “buy” rating of 2022 Q3 Company's Turkish Unit 1 to generate 1.34 billion kilowatt-hours, equivalent to 8121 hours of annual utilization hours and 1.27 billion kilowatt-hours of feed-in power. The plant's electricity consumption management is good and is expected to decline further as the supporting self-use photovoltaics are connected to the grid. In July, August, and September, Turkey's average electricity price clearance prices were 2.33 lira/kwh, 3.07 lira/kwh, and 3.85 lira/kwh, respectively. Based on current exchange rates, it is estimated that they correspond to 0.9 yuan/kwh, 1.16 yuan/kwh, and 1.47 yuan/kwh, respectively. The tight supply and demand of electricity in Turkey encouraged electricity prices to continue to rise. The company benefited from locking in imports of Changxie coal. Profitability increased with electricity prices. The profit release of Turkish Unit 1 played an important role in the recovery of Q3 single-quarter results. The Turkish Project Unit 2 was officially put into commercial operation on October 3, 2022, and the installed capacity of the Turkish power plant doubled in the fourth quarter. Moreover, Turkey's electricity prices were still high. As of October 28, Turkey's average electricity price in October was 1.37 yuan/kwh. As of October 28, the average electricity price in Turkey in October was 1.37 yuan/kWh. Q4 overseas performance is expected to continue to gain strength, and the sharp rise in volume and price will further increase profit levels. Looking ahead domestically, Q4 enters the strong wind season, and wind power generation is expected to rise month-on-month; with the gradual implementation of the Changxie coal policy, the profitability of the domestic thermal power business is expected to gradually recover. The company insists on vigorously developing new energy power supplies to create a long-term growth curve; continuously optimizes the company's power supply structure and gradually increases profit stability. We forecast that the net profit attributable to the company from 2022 to 2024 will be 1,145 billion yuan, 2,944 billion yuan and 4,049 billion yuan respectively, and profits attributable to common shareholders will be 1,014 million yuan, 2,814 million yuan and 3,919 billion yuan respectively. The corresponding EPS will be 0.36 yuan/share, 1 yuan/share, and 1.39 yuan/share, maintaining the “buy” rating.

Risk warning:

Risk of rising coal prices: Since the current policy target of coal compliance rate of Changxie Coal does not reach the 100% policy target, the cost of thermal power fuel is still affected by fluctuations in coal prices in the market. If coal prices rise sharply at this stage, it will cause fuel costs for thermal power to rise.

The risk of a decline in the profitability of Turkish power plants: The profitability of Turkish power plants is affected by factors such as local electricity prices, fuel costs, power generation capacity, etc. If the international situation, geopolitical relationships, international energy prices, Turkey's electricity supply and demand situation, etc., there is a risk that the profitability of Turkish power plants will decline.

Risk that the installation progress of new energy generation falls short of expectations: New energy power generation installations are affected by various factors such as policy guidelines, downstream demand, and upstream material prices. The installed growth rate is uncertain, and there is a risk that the installed growth rate falls short of expectations.

Risk of fluctuations in the output of new energy sources: The fragmentation, instability and high cost of utilization of new resources constrain the development of new energy power generation projects. New energy power generation projects face problems in various areas such as resources, technology, economy, management, and markets, and there are also many differences and uncertainties in their investment, construction and management models.