Key points of investment
The 2023 results fell short of expectations, and the payout ratio increased to 60%:
In 2023, the company achieved revenue of 44.262 billion yuan, an increase of 1.31% year on year; realized profit attributable to equity owners of 3.084 billion yuan, an increase of 16.48% year on year; realized profit attributable to common shareholders of 2.66 billion yuan, an increase of 7.23% year on year, with a basic profit of 0.22 yuan per share. The company's lower than expected performance was mainly due to water and electricity losses due to poor water supply and the relatively high share of minority shareholders in the acquisition of scenery assets, which reduced the share of net profit returned to mother. The company's dividend in 2023 was $0.132 per share, up 20% year-on-year, and the dividend ratio was 60%, up 10 percentage points from the 50% dividend rate in 2022.
Scenery profits are growing rapidly, and the recovery of hydropower profits is worth looking forward to:
In 2023, Scenery achieved a total net profit of about 4.62 billion yuan, and profit attributable to equity of 3.21 billion yuan. In 2024, the company plans to add 7 GW of installed capacity, and the annual capital expenditure is about 30 billion yuan. Based on the annual contribution of the acquisition of the Group's Fengguang assets in 2023, it is expected that Scenery will remain an important source of growth in the company's core profit in '24; the company's hydropower is mainly located in Fujian, Hunan, Guizhou and Guangxi.
Water has improved markedly since the first two months of 2024. The company's total electricity sales volume was +35.92% year-on-year, of which hydropower increased sharply by 84.34%. Incoming water is expected to improve throughout '24, and the recovery of hydropower profits is worth looking forward to.
There is still room for coal prices to decline, and the price of electricity capacity increases the profit stability of thermal power:
The unit price of the company's comprehensive standard coal in 2023 was 943.79 yuan/ton, a year-on-year decrease of 11.79%, resulting in a significant recovery in thermal power profits to achieve net profit of 1,315 billion yuan, a significant recovery from losses of 1,391 billion yuan in 2022. Currently, the company's energy recovery rate is about 96%, and the electricity cost of recycling capacity in the first two months of 2024 is about 400 million yuan. It is expected that there will still be some room for coal prices to decline in 2024. After the combined capacity electricity price is realized, the profit stability of the company's thermal power plants will be further enhanced.
Maintaining a buy rating, target price of HK$4.26:
We updated the company's target price of HK$4.26, which is equivalent to 9 times and 7 times PE in 2024 and 2025. The target price has room to increase by 32% compared to the current price, maintaining the purchase rating.