FY23 earnings fell slightly, but dividend ratio increased

The company's FY23 performance was in line with our expectations. Total revenue increased 9.3% year over year to 20.08 billion yuan (RMB, same below). By industry, wind power utilization hours fell 2.7% to 2419 hours due to poor wind resources, and revenue and net profit from the new energy business fell 1.6% and 14.9% year-on-year to 6.24 billion yuan and 1.82 billion yuan, respectively. On the other hand, due to a 15.9% year-on-year increase in natural gas sales to 4.50 billion cubic meters, natural gas business revenue and net profit increased 15.0% and 30.1% year-on-year to 14.03 billion yuan and 950 million yuan, respectively. The net profit margin of the new energy business fell from 33.6% to 29.1%; the net profit margin of the natural gas business did not change much, rising slightly by 0.7 percentage points to 6.7%. The net profit of the company's shareholders eventually fell slightly by 3.7% to $2.21 billion, similar to our forecast of $2.25 billion. The company raised the dividend ratio from 36.4% to 42.0%, which supports the valuation.

FY24 wind power installed capacity grows faster

Last year, the company added 482 MW of wind power installed capacity, and FY23's cumulative wind power installed capacity increased 2.4% year on year to 5,812 MW. FY23 wind power generation increased slightly by 0.4% year over year to 14,081 GWh. The company plans to add 800-1,000MW of wind power installed capacity to FY24. We expect FY24-25 wind power generation to increase by 13.8% and 22.0% year-on-year to 16,030 GWh and 19,550 GWh, respectively.

Tangshan LNG Phase II is expected to be put into operation on FY25 as scheduled

In June of last year, the first phase of the Tangshan LNG project (including 4 LNG storage tanks and an 8-266,000 square meter LNG ship berth, with a design handling capacity of 5 million tons/year) was put into operation. The second phase of the Tangshan LNG project (including 8 LNG storage tanks and a 1-266,000 square meter LNG ship berth, with a design handling capacity of 5 million tons/year) is under construction. We believe the second phase is expected to be put into operation on FY25 as scheduled.

We expect the company's FY24-25 gas sales to increase 7.1% and 7.0% year-on-year to 4.82 billion and 5.16 billion cubic meters, respectively.

Reiterate the “buy” rating

In response to FY23 results, we moderately lowered the net profit forecast for FY24-25 shareholders by 7.1% and 8.0% respectively, and adjusted the target price for H shares from HK$4.45 to HK$4.00 accordingly, corresponding 6.0 times the 2024 target price-earnings ratio and 35.2% room for growth.

Maintain a “buy” rating.

Risk warning: (1) risk of accounts receivable, (2) sharp drop in grid-connected electricity prices, and (3) rising natural gas costs.