The company has scarce hydropower resources in the Yalong River. With the full support of the controlling shareholder SDIC, the company has strengthened and expanded its core hydropower assets, and strictly controls project quality through advanced management systems. Clean energy hematopoietic energy remains fresh for a long time, thus guaranteeing cash flow and dividend rates. The first coverage gave an “increase in wealth” investment rating.
The SDIC power platform controls the core resources of the Yalong River. SDIC Electric Power is the only power platform under the SDIC Group and holds 52% of the shares of Yalong River Hydropower Company, the only hydropower developer in the Yalong River Basin.
Through a series of asset transfers and acquisitions, the company's business focus has shifted from traditional thermal power to clean energy. By the end of June 2023, the company's hydropower holdings reached 21.28 million kilowatts, making it the third-largest listed company with installed hydropower in China, accounting for 30.8%/55.1%/7.7%/6.4% of thermal power/ hydropower/ wind power/ photovoltaic installations respectively. Coal prices were high in 2022, and the hydropower business accounted for a high share of the company's performance fluctuations; in 2023, the coal price center declined, and the company expected to achieve net profit of 57.23-6.860 billion yuan, an increase of 40.35% to 68.24% compared with the retroactive adjusted data for the same period in 2022.
The hydropower business stood at the head of the Yalong River. The company's hydropower performance increased significantly in the first three quarters of 2023 due to continued strength after the Liangyang Power Plant was fully put into operation in March 2022; water storage is progressing well, which is expected to support the growth in 2024. The company's share of hydropower generation in Sichuan Province remains above 22% all year round. As hydropower consumption ushered in a turnaround and the gradual improvement of the delivery pricing mechanism, it is expected to benefit from rising electricity prices within the province and across provinces. With the excellent resource endowment of the Yalong River, the company still has high flexibility in new installations in the context of scarce water resources in China: in the short term, the commissioning of Liangyang can bring a cascade compensation effect of 10.2 billion kilowatt-hours per year, significantly increasing the profits of middle and downstream power plants; in the long run, power plants such as Kala and Mengdigou will be put into centralized operation around 2030, bringing 7-8 million kilowatts of hydropower installed; in addition, the new green certificate regulations are expected to further strengthen the company's high flexibility advantages of hydropower installations.
The transformation of the new energy business competes. Relying on the hydropower resources of the Yalong River Basin, the company has made every effort to promote integrated water and landscape development, deepen the complementary advantages of various power sources, and continue to make breakthrough progress in green and low-carbon development. It is estimated that by the end of the 14th Five-Year Plan, the total installed capacity of the company's new energy production will increase from the current 5.44 million kilowatts to 17 million kilowatts. The overall operating quality of the company's new energy units is high, and the gross profit from wind, light, and electricity remains stable.
Profit forecast and valuation: We predict that the company's net profit for 2023-2025 will be 64.44/73.67/ 8.371 billion yuan, EPS will be 0.86/0.99/1.12 yuan, respectively. The PE corresponding to the current stock price will be 17.0x/14.9x/13.1x, respectively, for the first time covered and given a “gain” rating.
Risk warning: risk of adjustment of electricity prices for water and electricity transmission, risk of fluctuating electricity prices in market-based transactions, risk of rising coal prices, risk of lagging progress in clean energy projects, etc.