Key points of investment
Overview: Zhejiang Xinneng is the only platform under Zhejiang Energy Group that specializes in the development and operation of clean energy businesses such as hydropower, wind power, and photovoltaic power generation. The actual controller is the Zhejiang State-owned Assets Administration Commission. In terms of asset structure, the list includes the manufacture of hydropower, photovoltaics, land wind, sea wind, and hydrogen energy equipment. The assets participating outside the list are mainly hydropower and water conservancy projects. The company has a high asset expansion plan and plans to add more than 10 GW of renewable energy installations during the 14th Five-Year Plan period. According to the company's performance forecast, the company expects to achieve net profit of 7-850 million yuan to the mother in 2022, an increase of 53.86%-86.83% over the previous year.
Asset Overview: Operations have stabilized, gross margin has gradually increased, and the Haifeng project is connected to the grid to help reach a new level of performance in 2022.
By the end of 2022, the total grid-connected installed capacity of the company was 4.3781 GW, of which hydropower, photovoltaics, and wind power were 1.1322, 1.9597, and 1.2862 GW respectively. Among wind power, onshore wind power and offshore wind power were 0.683 and 0.6032 GW respectively. On the margins, wind power has rapidly released performance since 2020, and achieved a high level of performance in 2022 after completing the connection of the two major offshore wind projects to the grid in 2021. The expansion of photovoltaic projects was led by outsourcing. Starting in 2018, the company gradually carried out the acquisition of photovoltaic projects in the northwest region. Since then, it has quickly released performance, which is currently the main support for the company's performance. In terms of hydropower, since most of the company's assets are small and medium-sized hydropower plants, its performance was greatly affected by the tap water situation. 2016 was the highest hydropower performance, with gross profit contributing 790 million yuan, and the low was 290 million yuan in 2018.
Resource expansion: The Sanbei region and the provincial development are carried out side by side, and water scenery are developed collaboratively. Backed by Zhejiang Energy Group, the company undertakes the group's main renewable energy development tasks. Project resource expansion can be summarized as two paths: offshore wind power and centralized photovoltaics within the province, and wind and centralized photovoltaics outside the province. Among them, development in other provinces relies on UHV lines and stock projects for marginal expansion, while the province relies on regional resource advantages brought by the group. Offshore wind power has been implemented at Zhejiang Jiaxing No. 1, Jiangsu Zhugensha H2, and Taizhou No. 1 (proposed additional capital projects). At the same time, the electricity supply and demand situation in Zhejiang Province continues to tighten, and consumption capacity in the province is strong. It is expected that electricity wastage rates will rise and feeder price discounts are limited. It is expected to maintain a high profit level under the declining trend of seabreeze and photovoltaic costs. Furthermore, conventional hydropower will focus on the expansion of regions rich in hydropower resources such as Sichuan. Pumped storage projects have sufficient reserves, and project companies have already been set up in Lin'an and Fuyang. Considering the relatively long development cycle, there is a high probability that they will contribute to performance during the 15th Five-Year Plan period.
Investment advice: First coverage to give an “increase in holdings” rating. As a green power development company in Zhejiang Province, the company has a strong determination to expand its assets. Under the current trend of new energy investment costs, the company's long-term allocation value is expected to gradually become prominent, and the percentage of bad debt accruals in the company's accounts receivable is high. If subsidies are distributed at an accelerated pace, it is expected to increase current earnings. Based on this, we expect the company's net profit to be 787, 12.07, and 1,533 billion yuan in 2022-2024, which was +72.9%, +53.5%, and +26.9%, respectively. The PE valuations corresponding to the closing price on April 7 were 31.0x, 20.2x, and 15.9x, respectively.
Risk warning: market-based transactions of new energy power prices fluctuate, wind power and photovoltaic development costs have risen sharply, macroeconomic fluctuations, and collection of accounts receivable has been blocked.