Incident: The company issued an announcement. From now until June 30, 2024, the majority shareholder, China Power Investment Group plans to increase its holdings of the company by no more than HK$2 billion.
Real money support reflects shareholders' determination to maintain stock prices in a weak market environment. Affected by factors such as the overall environment of the Hong Kong stock market, the outflow of foreign capital, and concerns about electricity prices, Hong Kong stock power companies have retreated significantly since 2022. As of October 25, 2023, China Electric Power's dynamic PE (based on the 2023 profit forecast, same below) has fallen back to 8 times and PB 0.62 times; Longyuan Electric Power's dynamic PE is less than 6 times and PB 0.7 times, all of which are in the lowest ranking range of historical valuations. Our analysis is already significantly underestimated. In response, central power companies have begun to frequently increase their holdings and buy back shares of listed companies, reflecting shareholders' determination to maintain the stock prices of listed companies: the controlling shareholders' holdings include Inner Mongolia Huadian, Guodian Electric, China Nuclear Power (A), Three Gorges Energy, and China Electric Power, which account for 0.4% to 1.4% of the total market value. Longyuan Electric disclosed that it plans to repurchase no more than 10% of the shares in Hong Kong stocks).
Up to now, China Power Investment Group and its subsidiaries have increased their holdings of China Power by more than 160 million shares and used capital of about 120 million yuan. What is disclosed is: 1) On August 30, China Power International Holding Limited increased its holdings by 18.065 million shares at an average price of HK$2.75 per share; 2) On September 6, China Power Investment Group Limited increased its holdings by 12.246 million shares at an average price of HK$3.07 per share; 3) September 12, won China Power New Energy Limited increased its holdings by 43.01 million shares, at an average price of HK$2.97 per share; 4) On October 10, China Power International Holding Limited increased its holdings by 6.058 million shares, with an average price of HK$2.96 million per share, involving approximately HK$17.93 million.
This time, China Power Investment Group plans to increase its holdings by no more than HK$2 billion, far surpassing previous rounds and peers. It is not only a determination to maintain stock prices, but also confidence in the company's development. The company achieved net profit of 1.68 billion yuan in the first half of 2023. Against the backdrop of severe decline in incoming water, the overall performance exceeded market expectations, mainly due to a strong recovery in thermal power profits. At the same time, the company's green power business continued to grow rapidly. Against the backdrop of unchanged dual carbon targets, we analyze that the company's performance is expected to continue to rise in the next few years. However, the company's stock price has been trading almost sideways since the beginning of the year and the trend has declined slightly, in stark contrast to the company's solid performance foundation. According to the company's announcement, the company's dividend rules stipulate that the annual cash dividend distribution accounts for no less than 50% of the net profit of the mother. According to the conservative 50% dividend rate assumption, combined with our profit forecast, the company's dividend ratio was over 6% in 2023 and over 9% in 2024, with high allocation value.
Actions speak louder than words. China Power Investment Group is full of motivation to build a flagship platform, and various tasks are progressing steadily. In addition to high dividends, the increase in shares held by major shareholders is more optimistic about the long-term development of the company. China Power Investment Group, the controlling shareholder of the company, is at the end of the asset securitization rate among the five major power groups, and is full of momentum to build a flagship platform. The group promised in writing that the company has priority purchasing and development rights for the Group's domestic and foreign assets, and the group's support for the company gradually increased: 1) in June 2022, the group acquired 2.2 GW of clean power assets; 2) in December 2022, the divestment of 4.76 GW of poorly managed coal power assets; 3) in December 2022, the acquisition of 0.6 GW of the Group's clean power assets; 4) In July 2023, it is planned to acquire 9.27 GW of the Group's clean power assets (including some units under construction. We estimate that after all units under construction are put into production, this acquisition could be (The company brought net profit of 1 billion yuan).
Profit forecast and rating: We maintain the company's net profit forecasts for 2023-2025 at 4.5.17, 65.28, and 7.230 billion yuan (including interest on perpetual bonds, estimated at about 350 million yuan), respectively. The current stock price corresponding to 2023-2025 PE is 8, 5, and 5 times (after deducting interest on perpetual bonds), respectively. We believe that the recent correction in the company's stock price has been affected by factors such as the liquidity of Hong Kong stocks and the uncertainty of electricity transactions, and that the current valuation has reached a sufficient margin of safety. Benefiting from the resonance between the Group's strategy and the company's fundamentals, several of the company's major business segments are in an upward cycle, have plenty of room for market capitalization repair, and continue to maintain the “buy” rating.
Risk warning: The reform of the power system falls short of expectations, and carbon neutrality policies have been repeated.