Continuing to be optimistic about the integrated development of water and scenery in the Yalong River, the 2024-2025 profit forecast was raised to take into account that next year's water may recover, the increase in the amount of water stored in the two estuaries this year brought about an increase in the power generation capacity of downstream power plants, and the 466 million units of the China Investment Qinzhou Power Plant were put into operation one after another, raising the company's net profit forecast for 23-25 to 71.2/85.7/9.45 billion yuan (previous value: 71.0/75.6/80.1 billion yuan). Based on 24E thermal power net assets/clean energy net profit of 53.57/7.327 billion yuan, with reference to the coal-power/clean energy comparable company 24E PB/PE Wind's unanimous forecast of 1.0/15.9x, considering that comparable thermal power companies have new energy asset valuation expectations and optimism about the future growth of Yalong River Hydropower, the company is given 0.9/17x 23E PB/PE, with a target market value of 129.4 billion yuan and a target price of 17.36 yuan (previous value of 15.40 yuan), maintaining a “buy” rating.
The SDIC Qinzhou Power Plant is advancing at an accelerated pace. Two of the SDIC Qinzhou Power Plant Phase III Project Unit 1 has already entered the peak of installation. Unit 2 has entered the peak installation period and is expected to be put into operation around March 2024. SDIC's Qinzhou Power Plant is currently the largest thermal power plant in Guangxi. Phase III plans to build 4 660,000 kilowatt ultra-supercritical units and support the construction of a heating pipe network. Construction of units 3 and 4 of these also began on December 26, 2022. The third phase of the project has a total investment of 11 billion yuan, an annual design power generation capacity of about 13.2 billion kilowatt-hours, an additional steam volume of about 2,400 tons/hour, and an annual output value of 6 billion yuan. Our research report “Hydropower Volume Declines, but Thermal Power Profit Has Improved Significantly” published on August 29, 2023, once estimated that the net profit of the 1H23 SDIC Qinzhou unit is in operation is as high as 6.1 points, with excellent profitability. The commissioning of the third phase of the project is expected to increase the company's thermal power profit.
The volume of water stored in the two estuaries increased year-on-year, and the Yalong River's joint scheduling increase in power generation can be expected, according to the Yangtze River Hydrology Network. As of November 1, 2023, the distance between the two estuaries of the leading reservoir in the Yalong River, which has the ability to regulate for many years, was only 3.9 meters away. The water storage level increased 19.13 meters year on year, and the water storage volume was 9.626 billion square meters, an increase of 2.81 billion square meters over the previous year. According to the public account of the Yalong River Hydropower Culture, the two estuaries of the two rivers prompted a year-on-year increase of 9 billion kilowatt-hours of power generation at the lower reaches of the Yalong River hydropower plant through joint scheduling. It is roughly estimated that the increase in power generation from December 2023 to April 2023-2024 may be 12.7 billion kilowatt-hours, an increase of about 3.7 billion kilowatt-hours over the previous year. We continue to be optimistic that the two estuaries will play the role of leading reservoirs during the dry water period to bring a strong growth effect to the power plant in the lower reaches of the Yalong River.
The target price is 17.36 yuan, maintaining the “buy” rating
We expect the company to return a net profit of 71.2/85.7/9.45 billion yuan in 23-25, giving the company a target price of 17.36 yuan and maintaining the “buy” rating.
Risk warning: Incoming/market-based electricity prices have risen less than expected; coal price growth has exceeded expectations.