Performance review
2023 results fall short of our expectations
China Electric Power announced 2023 results: revenue of 44.3 billion yuan, +1.3% year-on-year, and net profit to mother of 3.08 billion yuan, +16.5% year-on-year. The company's performance fell short of our expectations due to: 1) Water and electricity losses due to poor incoming water supply. 2) Minority shareholders' equity accounts for a relatively high share of the acquired scenery assets, and the profit attributable to minority shareholders was +38 times the same period last year to 1.45 billion yuan. The 2023 dividend rate was 60%, +10ppt year over year, with a dividend of 0.132 yuan per share, +20% year over year, higher than profit performance, to make up for lower than expected profit.
Thermal power: Coal-fired power fuel costs were -12.5% year-on-year, and pre-tax profit of coal-fired power reached 1.32 billion yuan, returning to a positive profit contribution. Specifically: 1) In terms of coal and electricity utilization hours, the year-on-year ratio was +12% to 5,246 hours, leading the industry. 2) The unit fuel cost was -12.5%, and the coal and electricity ignition price difference was measured at 111 yuan/megawatt-hour, +36% year over year, driving the net profit of thermal power to increase by 2.7 billion yuan year on year, contributing 29% to net profit.
Scenery: 12.8 GW of installed capacity was added, accounting for 75% of clean energy, and wind power performance was better than expected.
In 2023, Scenery added 4.8/7.9GW of installed capacity, including the acquisition of 3.7 GW/5.3 GW, all with subsidies. The cumulative installed capacity was +52%/+74% compared to the same period last year, accounting for a total of 52%. Wind power: Net profit +82.5% YoY to $3.12 billion. The wind conditions were good, and the utilization hour was +5.1% compared to the same period. Electricity prices were -1.5% year over year, transaction electricity prices declined slightly, and there was additional revenue from provinces, green electricity, etc. PV: Net profit +46.9% YoY to 1.5 billion yuan. Poor lighting, -5.4% year-on-year utilization and -6.3% year-on-year electricity prices.
Hydropower: Incoming water has dried up, resulting in a net profit loss of 830 million yuan. In 2023, the incoming water from Hunan and Guizhou, where the company had a lot of installed capacity, was severely depleted. The company's hydropower utilization was -35.7% compared to the same period last hour, resulting in a huge loss in net profit? After improving profits, operating cash flow was +73% YoY to $9.9 billion; full-caliber capital expenditure was large, +49% YoY to $30.3 billion. In 2023, the company's total interest expenses remained the same year on year, reaching 4.2 billion yuan. The balance ratio reached 68.9% at the end of the year, +1.4ppt year over year.
Development trends
The transition to thermal power regulates energy, and there is still room for coal prices to fall. According to the company's public results meeting, the company's thermal power plants will further maintain the transformation and regulation of energy, and at the same time, joint ventures with new energy sources can improve their electricity price performance. Looking ahead to 2024, the company's management expects that domestic coal production capacity will be abundant, the price drop may be higher than electricity prices, and capacity electricity prices will help improve profit stability. Scenery maintains its 7GW production target throughout the year. The company expects to maintain a relatively rapid landscape construction target in 2024, and capital expenditure is high.
Profit forecasting and valuation
Based on prudent new energy prices and utilization rates, we lowered the company's net profit from mother by 7.2% to 6.22 billion yuan in 2025, unchanged in 2024. 2024E/2025E profit was +68.4%/+19.8% YoY. The target price remains unchanged at HK$4.2 and the outperforming industry rating. There is room for an increase of 29.6% compared to the current stock price. Currently, H shares are traded at 2024E/2025E 6.9x/5.5x P/E, and the target price corresponds to 9.1x/7.6x P/E for H shares.
risks
Downward pressure on electricity prices; pressure on cash flow.