Incidents:
On March 21, 2024, China Electric Power released its 2023 annual report: in 2023, the company achieved revenue of 44.26 billion yuan, +1.3% year-on-year, and realized net profit of 2.66 billion yuan, or +7.2% year-on-year. 2023H2 achieved revenue of 22.94 billion yuan, -1.9% year-on-year, and realized net profit of 980 million yuan, or -42.2% year-on-year. (Note: Unless otherwise specified, the unit in this article is RMB) Dividend: The company's dividend at the end of 2023 was 0.132 yuan/share, with a dividend ratio of 61.4%.
Investment highlights:
Thermal power turned losses into profit+a sharp increase in new energy performance led to an improvement in the company's performance, and the decline in incoming water from hydropower and non-recurring revenue affected 2023H2 performance. In 2023, the company's net profit to mother was +7.2% year-on-year, mainly due to the year-on-year improvement in thermal power performance and a significant increase in new energy performance. By sector, net profit of thermal power in 2023 was 1.32 billion yuan, turning a loss into profit from -1.39 billion yuan in 2022; net profit of wind power/photovoltaics was 31.2/1.5 billion yuan, +82.5%/+46.9% year-on-year; due to poor incoming water in the watershed, the net profit for hydropower in 2023 was -8.3 billion yuan, a year-on-year decrease of 1.09 billion yuan. 2023H2's net profit to mother was -42.2% YoY. First, because net profit of hydropower was 680 million yuan and 2022H2 was -970 million yuan; second, because 2023H2 non-current revenue was 160 million yuan, year-on-year -1.99 billion yuan, mainly because the company confirmed negative goodwill income due to asset acquisitions in 2022, and there was no such matter in 2023.
The decline in coal prices boosted thermal power's performance and turned a loss into a profit. In 2023, the company's net profit for thermal power was 1.32 billion yuan, and the net profit for electricity was 2.3 cents/degree, an increase of 4.3 points/degree over the previous year, mainly due to falling coal prices, and the company's fuel cost per unit was -12.5% in 2023. The net profit of 2023H2 thermal power was 750 million yuan, and the net profit of kilowatt power was 2.5 cents/degree, an increase of 3.3 cents/degree over the previous year. We believe that with the disposal of the company's thermal power assets, domestic thermal power assets are already relatively high quality, and profit stability may increase significantly.
13.4 GW of installed capacity was added in 2023, driving a significant increase in Scenery's performance. The company's wind/photovoltaic net profit in 2023 was +82.5%/+46.9% year-on-year, mainly due to wind power/photovoltaic feed-in capacity +69.2%/+49.4% year-on-year. In 2023, the company added a total of 13.4 GW of new energy, of which 4.3 GW of self-built projects were put into operation and 9.1 GW was purchased (3.7/5.3 GW for wind power/photovoltaics, respectively).
In 2023, the company's net profit for wind power/photovoltaic power was 0.168/0.103 yuan/kilowatt hour, with a year-on-year change of +7.8%/-1.7%, and electricity revenue of -1.5%/-6.3% year-on-year (increase in affordable projects). Wind power revenue declined but net profit from electricity increased mainly due to the number of hours used +108 hours compared to the same period.
The company's net operating cash flow in 2023 was 9.9 billion yuan, +73% year-on-year, of which 2023H2 was 6.65 billion yuan, a significant improvement over 2022H2's -900 million yuan, mainly due to improvements in the company's thermal power performance, which led to a significant year-on-year increase in the company's operating profit.
Profit forecast and investment rating: According to the latest performance, we adjusted the profit forecast. The company's net profit for 2024-2026 is estimated to be 50/61/7.1 billion yuan, respectively, and the corresponding PE is 7.2/5.9/5.1 times. Looking ahead to 2024, the company's thermal power performance is expected to improve; incoming hydropower is expected to improve repair performance; and green power installations are expected to further contribute to growth and maintain a “buy” rating.
Risk warning: Policy progress falls short of expectations; new installed capacity falls short of expectations; sharp rise in coal prices; reduction in electricity prices; dry water supply; increased industry competition; risk of depreciation, etc.