China Longyuan (CLY) reported revenue of RMB28.097bn for 1Q-3Q23, experiencing a 7.00% YoY decrease. However, its net profit saw a notable increase of 18.95% YoY to RMB6.379bn thanks to a rapid rise in newly added installed capacity of wind and solar power and lower operating costs. Additionally, CLY is actively focusing on "substitution of large for small" of wind turbine its old wind turbines to enhance long-term results and is actively engaged in green electricity and certificate trading. The coverage of China Longyuan-A is transferred to us, and we assign a TP of RMB23.28 with a BUY rating.
1Q-3Q23 earnings beat. For 1Q-3Q23, CLY's revenue was RMB28.097bn, down by 7.00% YoY. However, the attributable net profit increased by 18.95% to RMB6.379bn. In particular, the wind power generation revenue saw a 3.53% increase, while the thermal power segment revenue experienced a 34.17% YoY decline. Other renewable power segment saw a solid increase of 68.48%YoY driven by robust solar power growth. The net profit attributable to shareholders up by 14.1% YoY thanks to increased newly-added installed capacity and lower operating cost.
Taking advantage of the "substitution of large for small" policy, CLY has actively upgraded and expanded old wind turbines' installed capacity, expecting significant long-term earnings improvement. The policy allows for the retrofitting and upgrading of old wind turbines that have operated for over 15 years with installed capacity below 1.5 MW. CLY, with nearly 30 years of wind power project operation experience, owns a significant number of old turbines, with 70% having a capacity below 1.5 MW and 3,000 turbines below 1 MW. Seizing the policy opportunity, CLY aims to enhance its wind power generation efficiency and project scale.
On-grid tariffs of wind power and thermal power improved in 1Q- 3Q23; CLY has actively engaged in green electricity and green certificate trading. Both wind and thermal power tariffs rose in 1Q-2Q23, driven by higher tariffs and electricity demand in the southern region. Additionally, CLY has actively engaged in green electricity and green certificate trading, generating an income of RMB400mn from approximately 1bn kWh of trading. It has mature experience in green electricity and green certificate trading, which we think will provide favorable prospects for future growth.
Assign a TP of RMB23.28 for China Longyuan-A with a BUY rating. We estimate CLY's EPS for 2023/2024 to be RMB0.97/1.14, representing an increase of 58.6/17.8% YoY. We assign a TP of RMB23.28 for CLY-A, based on a target FY23E P/E ratio of 24.0x. Currently, CLY-A trades at 21.5x FY23E P/E, and we believe the valuation is attractive, given the rapid growth of its newly-added installed capacity of wind and solar power, and solid revenue growth potential from retrofitting old wind turbines. We have a BUY rating on the stock.