Key points of investment:
Carbon neutrality and the energy crisis have boosted a recovery in demand for nuclear power. Nuclear energy is the second largest source of low-emission electricity after hydropower. Over the past 50 years, the use of nuclear energy has avoided about 70 billion tons of carbon dioxide emissions, and nuclear power has more flexible schedulability compared to photovoltaics, wind power, etc., and is a necessary option for energy saving and emission reduction. The issues of energy security and soaring energy prices brought about by the Russian-Ukrainian conflict have aroused the attention of all countries to nuclear energy. Many countries have readjusted their nuclear energy policies and included nuclear energy construction in their plans. In 2022, the world's new nuclear power installed capacity was 7.9 GW, an increase of 40% over the previous year; the global nuclear power installed capacity is expected to grow at a rate of 22 GW per year from 2023-2030.
The natural uranium supply and demand gap is expected to persist for a long time. There will be a shortage of about 90,000 tU of natural uranium in 2023. After the Fukushima nuclear accident, due to the relatively cautious promotion of nuclear power, the price of natural uranium has been low for a long time. Reduction in mine production and capital expenditure for exploration and construction have become the norm, and the increase in supply is limited. According to our estimates, it is estimated that the global supply of natural uranium from 2023-2025 will be 4.9, 52, and 60,000 tU, respectively. Demand has increased significantly in recent years as China has added nuclear power to the grid. It is estimated that the global demand for natural uranium in 2023-2025 will be 5.8, 60, and 610,000 tU, respectively, with supply and demand gaps of 0.9, 0.8, and 0.2 million Tu respectively, and there are almost no plans to start uranium mining after 2025, so the gap between supply and demand has widened again.
The company has stable internal demand and the world's leftmost cost uranium resources. The company is the only platform for the development of uranium resources under the CGN Group. It sells no less than 1,200 tU to the CGN uranium industry every year from 2023-2025. According to the CGN Group's current production plan for the units under construction, it is estimated that during 2023-2029, the CGN Group will add more than 1 million kilowatts of installed capacity every year. Demand for natural uranium is growing steadily, and a large amount of external procurement is still required. The company holds 49% of the shares of Kazakh Shea Company and Austrian Company respectively, and the right to underwrite 49% of natural uranium products in the two uranium mines under its administration; the cost of uranium mining in Kazakhstan is generally lower than in other countries, and the production cost of the company's uranium mining is between 13.8-24.7 US dollars/pound, which is on the far left side of global costs. The increase in production capacity continued as OSA's mining capacity climbed and the construction and commissioning of the Fission project in Canada.
Profit forecast, valuation analysis and investment recommendations: The company's net profit from 2023-2025 to the parent company is expected to return 3.74/7.59/ 1,067 billion yuan, a year-on-year increase of -18.6%/102.7%/40.6%, corresponding to EPS of 0.05/0.10/ 0.14 yuan, and PE of 29.4/14.5/10.3 times, covering the “buy-B” rating for the first time.
Risk warning: risk of large fluctuations in uranium prices; risk of production capacity falling short of expectations; geopolitical risk; risk of depletion of uranium ore reserves; risk of continued increase in mine production costs; risk of nuclear safety accidents; risk of international exchange rate fluctuations.