Net profit due to mother in 2023 was +22% YoY, profit forecast lowered
Longyuan Electric Power released its annual report. In 2023, it achieved revenue of 37.6 billion yuan (-5.6% YoY), net profit to mother of 6.2 billion yuan (+22% YoY), deducted non-net profit of 6.2 billion yuan (+8.7% YoY), and net profit to mother was lower than Huatai's forecast (7.5 billion yuan), mainly due to asset impairment of the company's accrued assets of 2.2 billion yuan. Of these, 4Q23 achieved revenue of 9.5 billion yuan (-1.1% YoY) and net profit of 140 million yuan to mother (year-on-year loss to profit). According to the company's production plan, the new installed capacity was lowered in 2024; referring to the changes in electricity prices in 2023, the electricity price forecast was lowered for 2024-25; “big generation and small” led to impairment, reducing wind power operating profit margin; we expect net profit to be 72/85/98 billion yuan (previous value: 93/113 billion yuan) in 2024-26. The target price for A-shares was RMB 20.64, based on 24xPE in 24 years, with a 7x premium over the comparable average; the target price for H shares was HK$10.43, based on the 24-year 11xPE, which is higher than the average PE value of 10x in the past three years. The premium reflects the potential for installed capacity growth and expectations for improved asset quality. We maintain a “buy” rating for both A/H shares.
The price of wind power has increased and decreased, and the amount of photovoltaic power has increased dramatically
In 2023, the company's power generation capacity was +7.9%; among them, wind power was +5.2%, and the average number of hours used by wind power increased by 50 hours year on year, thanks to the company's improved operation and maintenance efficiency and the year-on-year increase in average wind speed; -2.4% compared to the same period, the average number of hours used by thermal power decreased by 135 hours year on year. The thermal power load rate in Jiangsu Province declined due to the large increase in the installed voltage of new energy sources and reduced thermal power generation space; photovoltaics and other renewable energy sources were +160% year-on-year, mainly due to the rapid growth in the installed scale of photovoltaics. The company's 2023 wind power revenue was +1% year over year, and wind power prices were -5% year over year, affected by the increase in the market-based ratio and the increase in affordable projects.
Development indicators continue to be implemented, and new installations are expected to accelerate
In 2023, the company signed a new development agreement of 54 GW, including 24.65 GW of wind power, 23.95 GW of photovoltaics, and 5.4 GW of storage; the company obtained a development target of 22.75 GW, including 5.07 GW of wind power and 14.77 GW of photovoltaics). In 2023, the company put into operation 4.51 GW of new holding capacity, including 1.56 GW of wind power and 2.95 GW of photovoltaics. In 2024, the company plans to start 10 GW of new energy projects and put into production 7.5 GW.
Considering the company's project reserves and construction progress, we expect 2.6/3.5 GW of wind power installed, 4.9/8.1 GW of PV installed capacity in 24-25, and a total of 30 GW of installed capacity in the “14th Five-Year Plan”.
The valuation premium reflects installed capacity growth potential and asset quality improvement expectations. Our target valuation for Longyuan Electric Power A shares (001289 CH) is 24xPE in 24, which is 17x higher than Wind's agreed expectations; the target valuation for H shares (916 HK) is 11xPE in 24, which is higher than the average PE value of 10x in the three years of the company's history. We believe that the valuation premium mainly reflects: 1) the growth rate of the company's new wind power and photovoltaic installations and electricity in 24-25 is expected to show an upward trend, giving full play to its resource reserve advantages; 2) the company is expected to significantly benefit from the resolution of the problem of green power subsidy arrears; 3) the “big generation to small” transformation of wind power caused impairment losses in the early stages, but it is expected to increase the profitability of the company's stock projects in the future.
Risk warning: The wind fell short of expectations; electricity abandonment rates rebounded; coal prices rose; subsidy payments fell short of expectations.