The company's 2023 results are in line with market expectations
Huaneng International announced its 2023 results: operating income of 254.4 billion yuan, +3.1% year-on-year, net profit to mother of 8.45 billion yuan, turning a loss into a profit (2022 - 7.39 billion yuan). In 2023, a dividend of 0.2 yuan per share was announced, accounting for 57.14% of net profit attributable to common shareholders, in line with market expectations.
Fuel costs declined, thermal power turned losses into profits, and ancillary services contributed additional revenue. On the income side, strong demand for electricity compounded by insufficient incoming water. The use of coal and electricity was +3.8% per hour, and electricity prices were +0.1% year-on-year, maintaining a high rise. On the cost side, the unit fuel cost was 326 yuan/megawatt-hour, -12.4% year-on-year, and the ignition price difference was measured at 107 yuan/megawatt-hour, or +73% year-on-year, driving profit before thermal power tax of 430 million yuan in 2023 (2022 - 17.3 billion yuan). In addition, the net revenue of peak frequency modulation services in 2023 was 2,223 billion yuan/495 million yuan, accounting for a total revenue ratio of 1.1%, and the adjusted value of thermal power is being realized.
Scenery has put into operation a total of 8.7 GW. Electricity prices have generally declined, and wind power profits are under pressure. Wind power: 1.9 GW of new installed capacity was added during the year, with a cumulative installed capacity of 15.5 GW, +15% compared to the same period last year. The hourly rate was +3.2%, but after the increase in affordable projects, electricity prices were -5.5% year-on-year, with a reduction of 130 million yuan in value from generation to generation. Wind power's profit before tax in 2023 was 5.2%. PV: 6.8 GW of new installed capacity was added during the year, with a total installed capacity of 13.1 GW, +109% over the same period last year. Driven by installed equipment, although lighting resources were poor, utilization was -8.1% year-on-year, and electricity prices -9.2% YoY, profit before tax was +78% YoY to 2.04 billion yuan.
Profit improved, and operating cash flow was +39% year-on-year to 45.5 billion yuan, returning to the tradition of dividends. The company adjusted its loan structure. Short-term loans were -32% year over year, perpetual debt +28% year over year, balance ratio -8.7ppt to 68.3% year over year, and loan interest rate fell 51 bps year on year.
Development trends
The company's 2024 Scenery Plan capital expenditure was 29.5 billion yuan/35.4 billion yuan respectively, +26%/+39% year-on-year.
The company has already put into operation a total of 18 GW during the “14th Five-Year Plan” period, and the company expects to maintain a production schedule of about 10 GW every year for 24-25. Looking ahead to 2024, we believe that the reduction in the company's electricity prices is better than the price of coal. Profits from thermal power will continue to be released, capacity electricity prices, etc. will improve profit stability, and it is expected that backward units will gradually be transformed and eliminated to improve power generation efficiency. After returning to the dividend tradition, we expect the company's 2024E/2025E dividend ratio of 6.8%/7.3% corresponding to the current stock price of H shares, with prominent dividend value.
Profit forecasting and valuation
Due to the consumption of scenery and pressure on electricity prices, we lowered 2024E/2025E net profit of 17.6%/24.7% to 11.9 billion yuan/12.6 billion yuan, +40.9%/+5.6% year-on-year. High dividends boost valuations and keep target prices and industry ratings unchanged. In terms of net profit attributable to parent common shareholders, 2024E/2025E A shares currently trade at 15.9x/14.8x P/E, and H shares currently trade at 2024E/2025E 7.3x/6.8x P/E.
The target price for A shares is $10.49, with 15% upside, corresponding to 2024E/2025E 18.3x/17.1x P/E, and the target price for H shares is HK$5.35, with an upward margin of 17.1%, corresponding to 2024E/2025E 8.6x/8.0x P/E.
risks
Coal prices fluctuated upward; wind and light feed-in electricity prices declined rapidly.