Established in 2001, China Resources Electric Power is a leading domestic “fire to green” high-quality enterprise. The controlling shareholder of the company is China Resources Group (holding 62.9% of the shares in the 23 annual report), and the actual controller is the State Assets Administration Commission. By the end of '23, the company's equity installed capacity reached 59.76 million kilowatts, of which thermal power/wind power/photovoltaic/hydropower were about 3717, 1862, 344, and 540,000 kilowatts respectively. In '23, the company achieved main business revenue of HK$103.3 billion, YOY +0.03%; net profit to mother of HK$11 billion, YOY +56.2%.
Thermal power assets are high quality and have location advantages, and the decline in coal prices is expected to drive performance elasticity. The company's thermal power plants are of high quality and are mainly distributed in the economically developed coastal and central China regions, with obvious location advantages: 1) The company's thermal power usage hours in 22-23 reached 4731/4688, leading the country's thermal power 352/222 hours; 2) Electricity prices: in '23, the company's tax-free electricity price was 425.4 yuan/MWh, YOY -0.6%; 3) coal price: the average unit price of the company's standard coal in 23 years was 987.5 yuan/ton, YOY -12.6%, corresponding fuel cost of electricity was 296.3 yuan/MWh. 4) The core profit of the company's thermal power sector was HK$3.61 billion in '23. The estimated core profit of KDC was HK$0.024, compared to -HK$0.018 in '22. 5) Considering the distribution of the company's power plants, we expect the company's electricity prices to decline slightly in 24 years. As the electricity and coal supply and demand pattern becomes relaxed, the decline in coal prices is expected to further boost the flexibility of thermal power performance. Assuming a decline in coal prices of 60 yuan/ton, it is estimated that the company's profit share of the thermal power sector will increase by HK$1.72 billion to HK$4.57 billion.
To speed up the construction of installed scenery, the target is 10GW in 24 (7GW in 23). The company's “14th Five-Year Plan” energy installation target is 40 million kilowatts. As of 2023, it has increased its equity installed capacity by about 11.1 million kilowatts. 23-25 years may be an acceleration period for achieving the installed capacity target. 1) The company obtained 19.5 million kilowatts of renewable energy development and construction targets in '23, and has abundant resource reserves. The company proposed a target of 10 million kilowatts of new wind power and photovoltaic installed capacity in '24, a target of 7 million kilowatts in '23, and an actual target of 7.68 million kilowatts in '23.
2) The company's new energy project resources are high quality. The utilization hours of wind power and photovoltaics in 23 years were 2451/1480 hours, ahead of the national average of 226/194 hours. 3) The company's core profit in the renewable energy sector was HK$9.73 billion in '23. The estimated core profit for KWT was HK$0.22, and HK$0.225 in '22. 4) The net profit of the company's renewable energy sector in '23 was HK$8.08 billion, mainly due to depreciation of hydropower projects.
5) Under the guidance of the company's installed capacity target, without considering the company's non-recurrent matters, we estimate that the company's net profit share of the renewable energy sector is expected to increase by HK$1.65 billion to HK$9.73 billion in 24.
Profit forecasting and valuation. We expect the company to achieve net profit of HK$143, 172, and 18.9 billion in 2024-26, with earnings per share of HK$2.98, 3.58, and HK$3.94. Referring to comparable company valuations, considering the high quality of the company's assets, the company was given 7-9 times PE in 24 years; the corresponding reasonable value range was HK$20.86 to HK$20.86, and the initial coverage was given an superior rating over the market.
Risk warning. Installed equipment construction fell short of expectations. Fluctuations in market electricity prices and coal price fluctuations affected thermal power profits, and global macroeconomic changes caused exchange rates to fluctuate greatly.