1H23 Net Profit +15% YoY, Maintaining Profit Forecast

Jingneng Clean Energy (Jingneng) 1H23 achieved revenue of RMB 10.5 billion, +5% year on year, and net profit to parent was RMB 2.1 billion, +15% year on year. 1H23 Jingneng added 220MW of wind power and photovoltaics installed.

Maintaining our profit forecast, we expect net profit to be RMB 34/42/50 billion and BPS to be RMB 3.74/4.06/4.46 yuan for 2023-2025. We lowered our target price to HK$2.02, corresponding to 0.5XPb in 2023 (previous value: HK$2.55, based on 0.6XPb in 2023), a 0.32x discount from the comparable average expected by Wind, as the company's net profit CAGR for 23-25 (14%) was lower than the comparable average (19%). The company has prominent characteristics of undervaluation and high dividends. If the dividend rate in 2023 is not less than 35%, the implied dividend rate is expected to reach 9.4%. Long-term value is expected to be released, and “buying” will be maintained.

Green Power: Increased installed capacity drives increased revenue and operating profit

Jingneng 1H23 wind/photovoltaic power generation revenue increased 15%/7% year on year, and operating profit increased 15%/0.3% year on year, thanks to a 24%/5% year on year increase in power generation volume. Jingneng adheres to the independent development and acquisition strategy of wind power generation. 1H23 developed 2.59 GW (independent development 2.21 GW+ merger and acquisition 0.38 GW). At the end of June, the total number of projects under construction was 3.07 GW, and the total reserve project was 21.42 GW; the company achieved a breakthrough in the field of offshore wind power and completed the application for 1 GW of offshore wind power in Shantou. Considering the progress of projects under construction and acquisition projects, we predict that the company will add 3.0/4.0/5.2 GW of new installed capacity in 2023-2025, respectively, and the company is expected to achieve the “14th Five-Year Plan” goal of adding a total of 15 GW.

Gas and electricity: Operating profit continued to grow. Jingneng 1H23, which is positioned as the capital, increased 4% year on year, thanks to an increase in usage hours of 86 hours; however, the 1Q23 heating period was shortened year on year, and heat revenue decreased 9% year on year. Operating profit in the natural gas power generation and heating sector increased 3% year-on-year, thanks to a perfect price promotion mechanism and increased government subsidies. At the end of June '23, the company's installed gas and electricity capacity remained at 4.7 GW, and the project under construction was 0.15 GW. The gas and electricity business is a stable source of revenue and cash flow for the company. In the future, it is also expected to participate in the regulation of power grids and power systems to support more green electricity entering the Beijing market.

Scarce green labels with undervaluations and high dividends

The share of Jingneng 1H23 Green Power's operating profit was 72%, which increased sharply from 38% to 70% in 2017-2022; with the increase in the installed capacity of the wind and wind, there is still room for future profit share to rise, and we believe the company has become a clear green power standard. The company's current stock price corresponds to 3.7 xPE and 0.41 xPb in '23, and the valuation is significantly lower than that of its Hong Kong stock Green Power peers. However, the company maintained a steady and upward dividend payout policy, and the dividend payout ratio increased to 35% in 2022. If the dividend rate in 2023 is not less than 35%, the implied dividend rate is expected to reach 9.4%, which is higher than that of peers.

Risk warning: natural gas prices have risen excessively; green electricity production capacity has fallen short of our expectations.