During the 13th five-year Plan period, benefiting from the deepening of energy reform and the requirements of environmental protection, as an important non-water renewable energy, the chronic disease of abandoning wind power and limiting wind power will be significantly improved, and the working hours and cash flow of wind power operators will be reversed synchronously.Oriental Securities is expectedFrom 2017 to 2020, the installed capacity of the industry will achieve an average annual growth rate of + 10%, with hourly utilization of + 3%. Due to the decline of subsidies and the market grid price of wind power, the wind power sales revenue of major wind power operators will achieve an average annual growth rate of 10-12%. Net profit growth of 15-20%.
Oriental Securities issued a research report to give the wind power industry a "buy" rating for the first time, and recommended the leading wind power operators that benefit more from the improvement of power cuts in the three north regions.China Longyuan Power Group Corporation(00916)At the same time, it is also optimistic about the positive free cash flowHuaneng New Energy (00958).
The Energy Bureau issued a quantitative target in 2016: the consumption ratio of non-aqueous renewable energy will reach 2016 by 2020 (vs 6 per cent), which sets the tone for the development prospects of wind power during the 13th five-year Plan period. Oriental Securities believes that from 2017 to 2020, although the growth rate of wind power installation has slowed down after the last round of rapid expansion, the profit quality of the new units is better, and the profit level of the stock units in the three northern regions, which is affected by the chronic disease of abandoning the wind, has also recovered under various government measures.On the whole, the industry began to enter a healthier and more efficient growth stage after the rapid uplink caused by the rush installation of wind power in 2015.
Installation growth slows down, but profit prospects are better
In February 2017, the National Energy Administration issued guidance on energy work in 2017, clearly pointing out that new grid-connected projects in areas with serious abandonment of wind power should be strictly controlled, and the scale of new wind power construction in provinces with a wind abandonment rate of more than 20% will be suspended. A week later, the National Energy Administration released the results of wind power investment detection and early warning in 2017. Six regions (Inner Mongolia, Heilongjiang, Jilin, Ningxia, Gansu and Xinjiang) have built red warning areas for wind power development, that is, before the early warning is cancelled, new wind power projects shall not be approved, and effective measures should be taken to solve the problem of wind abandonment.
Red alert and short-term profit prospects promote the southward installation of wind power. From a policy and economic point of view, the new installed capacity of wind power operators will tilt to the central and eastern and southern regions in the next two to three years. Oriental Securities believes that in view of the relatively limited wind power resources and high difficulties in development in four types of wind areas, such as the central and eastern regions and the southern region, Oriental Securities conservatively expects that from 2017 to 2020, new wind power will be installed every year 15GW, industry CAGR+10%, future wind power installation growth will slow down, but the quality of asset earnings due to the improvement of wind turbine distribution structure will be significantly improved.
Make use of the hour to pick up continuously
Oriental Securities expects that during the period from 2017 to 2020, the wind power limitation rate of abandoned wind power will decline steadily year by year, and the average utilization hours of wind power across the country, especially in the three northern areas with rich wind resources, will be restored synchronously. By 2020, the abandonment wind power limit rate will be less than 5%, and the utilization hour will reach more than 2000 hours (vs 2016, abandoned wind power limit rate 17%, utilization hour 1742 hours).
Oriental Securities believes that the increase in the utilization rate of wind farms is mainly due to two more powerful forces:1) the regional supply and demand pattern is improved after the red early warning policy.After the red warning policy, the approval of new wind power projects in the three northern regions with the most serious abandonment of wind power was suspended. The proportion of new installed capacity in red warning areas such as Xinjiang, Inner Mongolia, Gansu, Ningxia, Jilin and Heilongjiang dropped rapidly from 62% in 2015 to 12% in mid-2017. In mid-2017, the rate of abandoned wind power cut in mid-2017 quickly dropped by 7 to 18 percentage points from mid-2016, and recovered 0-48% year-on-year in utilization hours.
2) Cross-provincial and inter-regional transactions to implement wind power consumption.China's wind power development is mainly concentrated in the 10 million kilowatt wind power bases in the three north and coastal areas, and actively develop decentralized wind farms and offshore wind power in the eastern and central parts of China. However, because the three-north region is far away from the power load center, and the power supply structure in China is dominated by coal power (and contains a large number of heating units), there is a lack of regulatory power and demand-side response resources, and the balanced dispatching range of power system is small. the process of power grid planning and construction is not coordinated with wind power, which makes the lack of local consumption capacity, peak regulation capacity and transmission channel capacity become the main obstacles to the large-scale development of wind power.
During the 13th five-year Plan period, the UHV project of power transmission from west to east was established as a cross-provincial and trans-regional transmission channel to optimize the configuration of wind, light, fire and other power sources, so as to effectively expand the scale of wind power development and consumption market in the three-north region. The nine wind power transmission UHV lines included in the 13th five-year Plan will solve the problem of consumption of 40 million kilowatt wind turbines (including stock projects). By mid-2017, the starting area of these nine UHV lines will have installed 74.4 million kilowatts of wind power.
On the other hand, the National Development and Reform Commission has also begun to strictly monitor the work progress of non-water renewable energy consumption in various provinces. In April this year, the Energy Bureau issued a report on the supervision and evaluation of the national renewable energy power development in 2016, defining the work target and progress of non-water renewable energy consumption in each province, and ensuring that the national non-water renewable energy consumption target of 9% in 2020 was achieved.
Green card policy falls to the ground, recasting industry profit expectation
In February 2017, the three ministries of the National Development and Reform Commission, the Ministry of Finance and the National Energy Administration issued a circular on the trial implementation of the renewable energy green power certificate issuance and voluntary subscription transaction system. Since 2018, the assessment of renewable energy power quotas and the mandatory binding trading of green power certificates have been launched in due course, and the voluntary subscription work has been officially launched since July 1, 2017. The subscription price shall be determined by the buyer and seller through negotiation or through competitive bidding according to the additional subsidy amount of renewable energy electricity price which is not higher than the corresponding electricity quantity of the certificate.
The subsidy scheme for the wind power industry has made a transition from policy enforcement to a more market-oriented direction such as a green card, which increases the uncertainty of the profitability of the industry's new capacity in the short term, but is good for the healthy development of the industry in the long run.The emergence of the green card policy is to fill the gap in the renewable energy development fund, from renewable energy subsidies to the green card policy. Oriental Securities believes that this will only affect the future new units of wind power. However, it is beneficial to the improvement of the cash flow of wind power assets (the account period of electricity revenue is shortened). After the landing of the policy, the profit prospect of the industry is clear, and the profit expectation is recast.
First buy rating for wind power industry to recommend China Longyuan Power Group Corporation and Huaneng New Energy
Taking into account the above factors, Orient Securities gives the wind power industry a buy rating.Oriental Securities conservatively expects the installed capacity of major wind power operators to grow by 8% from 2017 to 2019 (paying more attention to the quality of asset earnings rather than scale). Considering the decline of subsidies and more participation in market-oriented electricity trading, the grid price of wind power will decline by 1-2% every year. The average annual revenue from wind power sales is 10-12%, but because of operating leverage (more types of wind projects with high operating rate) The compound growth rate of homing net profit is 15-20%, corresponding to the valuation of major companies in 2018, PE7-9 times, and the company's ROE increases year by year with the increase in the load rate of power plants, and against the background of accelerated recovery of additional payments for renewable energy prices, free cash flow begins to become positive. Oriental Securities believes that there is a possibility of an increase in the overall valuation of the wind power industry.
In terms of individual stocks, Oriental Securities is more optimistic about the leader of wind power operation and relatively benefits from the improvement of power cuts in the three northern regions.China Longyuan Power Group CorporationAt the same time, it is also optimistic that the free cash flow begins to become regular and has high operational efficiency.Huaneng new energy.
Risk Tips:1) the decline rate of wind power price is faster than expected; 2) the rate of abandoning wind power cut-off goes up again.
China Longyuan Power Group Corporation, the leader of wind power operators, has benefited from the continuous improvement of power cuts in the three northern regions.
China Longyuan Power Group Corporation is the largest wind power operator in China, and the main shareholder is Guodian Group, one of the five major power generation groups. since its establishment in 1993, the company has achieved wind power installation 17417MW, and thermal power 1875MW, which is an early cash cow asset. Oriental Securities is optimistic about China Longyuan Power Group Corporation mainly based on: 1) the proportion of installed capacity in red warning areas is high, and the improvement of power limitation is the most obvious; 2) the proportion of electricity traded in the market is low, and the decline in electricity price is better than Huaneng New Energy; 3) the green card policy may be about to land, and the profit outlook is clearer.
Core viewpoints
The proportion of installed units in red warning areas is high, and there is relatively large room for improvement in power limitation.China Longyuan Power Group Corporation's wind power installation in six red alert provinces, including Inner Mongolia, Xinjiang, Gansu, Ningxia, Heilongjiang and Jilin, accounts for 46% of the company's total wind power installation (32% of vs Huaneng New Energy). With the strict control of new installations in the main power-limited areas, Oriental Securities expects the abandonment wind power limit rate to improve rapidly, with the company's average annual increase of 5%, or + 100 hours, from 2017 to 2019, increasing net profit by 13-15% a year.
The proportion of electricity traded in the market is low, and the decline of comprehensive electricity price is better than that of peers.In some energy-rich provinces, in order to avoid abandoning wind power and limiting power, local wind power operators have also begun to participate in market power transactions, with relatively large discounts for traded electricity in provinces with cheaper hydropower or coal power. In the first half of this year, China Longyuan Power Group Corporation's market electricity proportion was 20% (vs Huaneng New Energy 28%). Orient Securities expects the proportion of trading electricity to continue to rise with the deepening of electricity reform, but Orient Securities believes that China Longyuan Power Group Corporation will adopt a relatively cautious and reasonable attitude of participation.
After the implementation of the green card policy, the profit forecast will be recast.The emergence of the green card policy is to fill the gap in the renewable energy development fund, from renewable energy subsidies to the green card policy. Oriental Securities believes that this will only affect the future new wind power units and improve the cash flow of wind power assets (the account period of electricity revenue is shortened). After the landing of the policy, the profit prospect of the industry is clear, and the profit expectation is recast.
Financial forecasts and investment suggestions
The net profit of Oriental Securities Forecast Company from 2017 to 19 is 37.3,47.4 and 5.95 billion yuan respectively, and the corresponding diluted EPS is 0.46,0.59,0.74 yuan respectively. Because of the relative predictability of cash flow, Oriental Securities adopts the DCF valuation method.Target price HK $9.48Corresponding to 2018 PE13.7 times, 2018 PB1.1 timesGive a buy rating for the first time.
Risk Tips:The price of wind power fell faster than expected; the rate of abandoning wind power limit went up again.
Huaneng new energy: free cash flow, scenery and economy
Huaneng New Energy is a national distribution of wind power, photovoltaic and other non-water renewable energy operators, the main shareholder is Huaneng Group, one of the five major power generation groups. Since its establishment in 2002, the company has achieved wind power installation 10252MW, photovoltaic installation 868MW, and wind power installation is mostly concentrated in three or four types of wind areas with low power restriction rate. Dongfang Securities is optimistic that Huaneng New Energy is mainly based on: 1) the free cash flow is positive and the expectation of re-rights issue is reduced; 2) after the improvement of power cuts, the use of hourly recovery; 3) the green card policy may be about to land, and the profit prospect becomes clearer.
Core viewpoints
Use hours to determine to enter the pick-up channel.With the Energy Bureau issuing red warning policies in six provinces and regions (Inner Mongolia, Xinjiang, Gansu, Ningxia, Heilongjiang, Jilin), as well as various measures to ensure the consumption of wind power, the national abandonment wind power limit rate has fallen rapidly, and the average wind power utilization hour has risen synchronously. Oriental Securities expects Huaneng New Energy to abandon wind power limit rate of less than 10% in 2017 (12% in vs2016 year), with an average annual increase of 4% per hour, that is, + 80 hours. Increase net profit by 10-12% every year.
Free cash flow is expected to become a regular employee in 2017.Due to the slow repayment of the additional funds for the electricity price of renewable energy (the wind power price is paid by part of the grid below the thermal power benchmarking price, and the excess is paid by the Renewable Energy Fund). At the same time, Huaneng New Energy has expanded rapidly over the past four years (doubling installed capacity in 2012-2016), and the company's free cash flow has been negative. With the relevant capital liquidation documents issued by the Ministry of Finance this year, Oriental Securities expects the number of days of accounts receivable from the company's electricity revenue to fall rapidly, free cash flow will become regular from 2017, and subsequent rights issues are expected to decline.
After the implementation of the green card policy, the profit forecast will be recast.The emergence of the green card policy is to fill the gap in the renewable energy development fund, from renewable energy subsidies to the green card policy. Oriental Securities believes that this will only affect the future new wind power units and improve the cash flow of wind power assets (the account period of electricity revenue is shortened). After the landing of the policy, the profit prospect of the industry is clear, and the profit expectation is recast.
Financial forecasts and investment suggestions
The net profit of Oriental Securities Forecast Company in 2017-19 is 31.6,36.2,4.04 billion yuan respectively, and the corresponding diluted EPS is 0.30,0.34,0.38 yuan. Due to the relative predictability of cash flow, Oriental Securities uses the DCF valuation method.Target price HK $3.92Corresponding to 2018 PE9.8 times, 2018 PB1.2 timesGive a buy rating for the first time.
Risk Tips:The price of wind power fell faster than expected; the rate of abandoning wind power limit went up again. (editor: Jiang Yu)