Impairment losses affected profits, and the company's performance in 2023 was in line with expectations. The company achieved operating income of HK$103.334 billion in 2023, which was basically the same as the previous year. Excluding HKD exchange factors, revenue in RMB increased 4.9% year over year to $92.94 billion. The company's net profit in 2023 was HK$11.03 billion, up 56.2% year on year. Among them, core profit from the renewable energy business contributed HK$9.726 billion, up 12.5% year on year, and core profit from the thermal power business contributed HK$3,611 billion, reversing losses compared to the loss of HK$2,582 billion in 2022. In 2023, the company accrued asset impairment losses of HK$2,749 billion for Yunnan Nujiang Hydropower Trust Loan, Guizhou Integrated Coal and Electricity Project, and Zhuhai Electric, etc., an increase of 163.1% over the previous year, causing a major drag on 2023 profits. The company's 2023 dividend was HK$1.415 per share, with a dividend payout ratio of 62% and a dividend ratio of 4.14%.
The drop in fuel costs has led the thermal power sector to reverse losses. By the end of 2023, China Resources Electric Power's thermal power installed capacity was 36.6 GW, accounting for 62.2%. Thermal power sold 152 billion kilowatt-hours, an increase of 2.3% over the previous year, and the average number of hours used at full load of thermal power was 4,688 hours, the same as the previous year. In terms of electricity prices, 85% of the company's electricity sales in 2023 will be priced using market methods, and the average feed-in electricity price (excluding tax) for thermal power is expected to be around 425 yuan/megawatt-hour. Compared with the benchmark electricity price, the increase was 18%. On the cost side, the company's average coal consumption for electricity supply was 297.17 grams/kilowatt-hour, the same as the previous year. The average fuel cost decreased by 12.6% to 296.3 yuan/megawatt-hour. The decrease in fuel costs led thermal power to contribute HK$3,611 billion in profit.
The scale of new energy generation has gradually expanded, and profits have steadily increased. As of 2023, the company has installed 22.6 GW of new energy, accounting for 37.8%, of which 18.62 GW of wind energy. In 2023, new energy sales were 42.1 billion kilowatts, up 19.26% year on year. Among them, the average utilization time of wind power was 2,451 hours, up 2.2% year on year, and the average utilization time of photovoltaics was 1,480 hours, down 2% year on year. However, due to the doubling of the installed capacity of photovoltaics, PV electricity sales increased 112% year on year in 2023. Although the amount of new energy generation is gradually increasing, the average feed-in price is weakening year by year. The average feed-in price for wind power in 2023 (excluding tax) is expected to be 462 yuan/megawatt-hour, a year-on-year decrease of 3.14%.
Profit forecast and investment recommendations: Based on the restoration of the company's thermal power profitability and new energy contributions, we adjusted the company's net profit for 2024-2026 to 144.7 (-1%)/165.04 (-1%)/HK$18.724 billion, taking into account factors such as the company's calculation of corresponding asset impairment losses.
At the same time, considering the gradual increase in the company's share of new energy generation, the improvement in future profit stability and cost control capacity, and smoothing the cyclical impact of thermal power, in the DCF valuation model, we raised the company's sustainable growth rate forecast (adjusted from 0.2% to 0.3%) and raised the target price to HK$25.55 (+16%), corresponding to the company's PE 9 times in 2024, maintaining a “superior to the market” rating.
Risk warning: Electricity demand falls short of expectations; the decline in coal prices falls short of expectations; installed capacity falls short of expectations.