Event: on July 17, 2023, the Fujian Provincial Development and Reform Commission announced the results of market-oriented competitive allocation of offshore wind power in 2023 (the first batch of 2GW). Two projects with a total 950MW were selected from Fujian Investment and Development Group, which is affiliated to the company, namely: (1) taking CIC Electric Power as an alliance, Changle Waihai I (South) 300000 kw project and (2) Changle Waihai J area 650000 kw project.

Continuous access to high-quality sea breeze resources, with the group's commitment to protect. The company is the only new energy power generation listing platform of Fujian Investment and Development Group (by the end of 2022). When the company's major assets were reorganized in 2019, the investment group promised that the holding high-quality assets would be put into operation in a complete fiscal year to achieve profits, there were no compliance problems and met the listing conditions, the injection process will be initiated within one year. According to this commitment, Pingwan Phase 3 already has the injection conditions, and if the injection is completed in the middle and late third quarter, it is expected to contribute about 350 million yuan in electricity revenue to 2023, when the company's holding installed capacity will increase by 32.6%, wind power capacity by 34%, and sea breeze capacity by 105%. In addition, the 300000 kw Haifeng project in area B of Xiapu, Ningde, which is controlled by the Investment Group, was approved by the Provincial Development and Reform Commission on November 26, 2021 and is currently under way.

Competitive pricing rules ensure reasonable income, simultaneous allocation and storage of 200MW/400MWh. In the grading rules of Fujian Haifeng competition, the declared electricity price accounts for 40 points (a total of 100 points). The average unit price of the network fee declared by the investors who have passed the qualification examination is taken as the benchmark electricity price (if the number of investors > = 6, the highest and lowest points are removed). The benchmark electricity price is 35 points, on this basis, the competitive distribution price increases / decreases by 0.001 yuan per kilowatt-hour. The new competition rules not only retain the market competition mechanism, but also avoid the problem of low income caused by a single competition condition, which provides a sustainable driving force and a benign development environment for the subsequent allocation of sea breeze resources in the province.

The supply and demand of electricity in the province is more balanced, and the additional energy storage provides power grid flexibility. This competition requires investors to build electrochemical energy storage according to 10% of the project size and 2 hours, and to be completed and connected to the grid at the same time as the offshore wind power project, otherwise it is considered not to meet the competitive configuration conditions. In 2022, Fujian Province generated 307.4 billion kilowatt-hours of electricity, an increase of 4.87 percent over the same period last year, of which wind power generation was 23 billion kilowatt-hours, accounting for 7.5 percent of the total electricity generation. The electricity consumption of the whole society was 289.96 billion kilowatt-hours, an increase of 2.22 percent over the same period last year. The growth rate of power generation in the province is higher than that of power consumption, and the situation of power supply and demand is good. New energy accounts for 16.02% of the total power generation installed in the province (data at the end of 2022), which is lower than 29.56% of the whole country. Therefore, at the present stage, the utilization rate of Fujian scenery is maintained at 100%, and basically all of it is purchased and absorbed by the power grid. The layout of energy storage facilities in advance will effectively improve the flexibility of the power grid, which will help to increase the proportion of new energy construction connected to the grid and market transactions.

Investment suggestion: the company relies on Fujian Investment and Development Group and has rich experience in offshore wind power operation and high-quality project reserve. Pinghai Bay Phase III injection conditions are complete, which is expected to contribute to this year's performance. It is estimated that the company's operating income (excluding upcoming projects) from 2023 to 2025 will be 1.945 billion yuan, 1.983 billion yuan and 2.011 billion yuan respectively, and the net profit of returning home will be 879 million yuan, 919 million yuan and 965 million yuan respectively, an increase of 20.6%, 4.5% and 5.1% over the same period last year. The corresponding EPS is 0.46,0.48,0.51 yuan, and the corresponding PE multiple is 12.7X, 11.6X, 11x, maintaining the "over-holding" rating.

Risk hints: the wind is too late to expect, the risk of electricity price falling more than expected, natural disasters, electricity demand is lower than expected, the implementation of relevant policies bring uncertain risks, the new project process is not as expected.