Key points of investment
Incident: Zhongmin Energy released its 2022 annual report. The company achieved annual revenue of 1,791 million yuan, +14.84% year on year, net profit of 729 million yuan compared to the previous year, +6.98% year on year, gross margin was 61.68%, -3.28 pct year on year, net operating cash flow increased to 1,276 million yuan, +59.14% year on year, balance ratio was 49.10% year on year, and -5.20 pct year on year. Based on operating data, our review is as follows:
The amount of feed-in electricity in 2022 was +17.41% compared to the same period last year. Increased revenue from electricity sales led to a high increase in cash flow. As of 2022, the company holds a total of 957,300 kilowatts of grid-connected installed capacity, including 611,300 kilowatts of land wind, 296,000 kilowatts of sea wind, 20,000 kilowatts of photovoltaics, and 30,000 kilowatts of biomass thermal power. There were no new projects for various power types during the year.
Since Pinghai Bay Haifeng Phase II (246,000 kilowatts) was connected to the grid in December 2021, electricity generation increased in 2022. Zhongmin Haidian, a subsidiary holding the Pinghai Bay Phase I and II projects, achieved net profit of 420 million yuan for the whole year, +11.44% year on year; when combined, the utilization hours of Fujian Lufeng and Heilongjiang Lu Feng increased 298 and 233 hours over the same period last year, and the company's wind power feed-in capacity increased +16.69% year on year in 2022; the increase in electricity capacity drove electricity revenue to +14.20% year on year, which in turn drove the company's operating cash flow to a new record of net operating cash flow up to 12.76 100 million yuan. Furthermore, the biomass cogeneration project in Erlongshan Town (30,000 kilowatts) was officially put into operation in April 2022, adding 27 million kilowatts of biomass feed-in capacity, but due to annual losses of 46 million yuan, the company's performance was hampered to a certain extent.
Shareholders' projects are progressing faster, awaiting asset injection. According to the promise of the company's controlling shareholder Investment Group, when entities such as Putian Pinghai Bay Offshore Wind Power Phase III, Fujian Investment Pumped Energy Storage, and Ningde Xiapu Offshore Wind Farm Zone A, B, and C have achieved profits within a full fiscal year and other conditions are met, the opportunity will be injected into the listed company. Among them, the Pinghai Bay Phase III project (308,000 kilowatts) was connected to the grid at the end of 2021, and the injection conditions may have been met; the Yongtai Power Station (1.2 million kilowatts) saved by Fujian Investment was put into operation at full capacity in the first half of 2023; the Xiapu Area B project (300,000 kilowatts) was approved in 2021 and is in the early stages of preparation; considering the asset injection situation in the later stages, the company is expected to achieve rapid performance improvements in the future.
Investment suggestions: 1) As a local ocean wind operator in Fujian Province, the company benefits from local resource endowment advantages, and the number of hours used for unit power generation is higher than the national average all year round; 2) Future shareholders' project injection into the company is expected to bring about large-scale installed capacity growth. We adjusted our profit forecast. The company's net profit forecast for 2023-2025 was 855, 912, and 959 million yuan respectively. The growth rates were 17.3%, 6.6%, and 5.2% respectively. Corresponding to the closing price of PE on April 19 were 11.9x, 11.2x, and 10.6x respectively, maintaining the “increase in holdings” rating.
Risk warning: The pace at which shareholder projects are injected into the company falls short of expectations, risk of electricity price fluctuations, electricity consumption risk, and macroeconomic risk.