China Power Investment's core platform for new energy sources continues to advance energy transformation. The company is a new energy core platform under China Power Investment Group. As of the end of '23, China Power Investment Group held 61.06%. By the end of 2023, the company's consolidated installed capacity was 45.2 million kilowatts, YOY +42.5%. Among them, coal/gas/hydropower/wind power/photovoltaic/environmentally-friendly installations were 1108/50.5/595.1/1202/1515/317,000 kilowatts, YOY +0%/6.31%/+9.17%/+67.1%/+110.2%/+60.91%, respectively. In 2023, the company's main business revenue was 44.26 billion yuan, YOY +1.31%; net profit to mother was 2.66 billion yuan, YOY +7.23%.
Thermal power turned a loss into a profit, hydropower was under pressure, and the profitability of wind power and photovoltaics continued to be unleashed. (1) The net profit of thermal power reached 1.32 billion yuan in 23, and was -1.39 billion yuan in '22, turning a loss into a profit. It was mainly due to a decline in coal prices, and fuel costs for electricity fell by 12.5% to 285.5 yuan/MWh. Assuming a slight drop in electricity prices of 1% and a 7% drop in coal prices in '24, it is estimated that the company's net profit in the thermal power sector is expected to increase by 730 million yuan to 2.05 billion yuan. (2) The net loss of hydropower in 23 years was 826 million yuan, a year-on-year decrease of 1.09 billion yuan, mainly due to poor water intake. The company's hydropower utilization hours fell 1205 hours to 2,166 hours. Assuming a return to 3300 hours in 24, it is estimated that the net profit of the company's hydropower sector is expected to increase by 1.7 billion yuan to 870 million yuan. (3) Scenery's total net profit reached 4.62 billion yuan, YOY +69.2%, mainly contributed by the addition of new units. According to the company's guidelines, assuming an increase of 6.985 million kilowatts in 24 years, it is estimated that Scenery's net profit is expected to increase by 1.58 billion yuan to 6.2 billion yuan.
The Group's high-quality asset injection shows confidence and increases profits. According to the company's new development strategy plan, the company proposed that in 2023 and 2025, clean energy accounts for more than 70% and 90% of installed capacity, clean energy revenue accounts for more than 50% and 70%, and clean energy accounts for more than 95% of installed capacity in 2030. At the end of '23, the company's clean energy accounts for 75.4%. Assuming that the scale of the company's thermal power installation remains unchanged/reduced by 30%/50%, we estimate that the company's renewable energy incremental space will be about 6578/3587/15.92 million kilowatts until 25. In addition to building its own installed equipment, the company is also expected to benefit from the injection of high-quality assets from the China Power Investment Group, with broad potential incremental potential (in July 23 and July '22, the Group injected high-quality assets into the company twice, with an installed capacity of 753.2/2.155 million kilowatts, with transaction consideration of 107.9/8.69 billion yuan, respectively. The invested assets increased the company's net profit to the mother by 8.3 million yuan and 5.2 billion yuan, respectively).
New energy storage businesses are expanding, and revenue has increased dramatically. The company established Xinyuan Smart Storage in a joint venture with Haibosichuang, a leader in the energy storage industry, in July '21 to officially lay out the energy storage business, of which China Electric Power Holdings holds 51%. In 2023, the total revenue from the energy storage business was 2.55 billion yuan, YOY +184%, net profit to mother was 37.18 million yuan, and YOY +8.64%.
We believe that the company's new energy+energy storage development model is expected to form a good synergy effect, improve energy efficiency, and promote clean energy transformation, and is expected to maintain rapid growth in the future.
Profit forecasting and valuation. We expect the company to achieve net profit of RMB 51.4/59.7/7.26 billion in 2024-26, with earnings per share of RMB 0.42/0.48/0.59 yuan. Referring to comparable company valuations, considering the company's thermal power profit recovery and the group's high-quality asset injection, it is possible to give the company a certain valuation premium, 8-10 times PE over 24 years, converted at 1HKD = 0.92 CNY. The corresponding reasonable value range is HK$3.65-4.57. The initial coverage is superior to the market rating.
Risk warning. New energy construction fell short of expectations, asset injection uncertainty, and the profitability of new energy sources declined.