Core views:
The proposed transfer of shares in Changjiang Securities is expected to increase investment returns. The company plans to transfer 530 million shares of Changjiang Securities at a price of 820 yuan/share (accounting for 9.58% of Changjiang Securities shares), with a premium of nearly 60% compared to the current stock price, for a total transfer price of 4.343 billion yuan. As of the end of 2022, Changjiang Securities's equity book value balance was 2,976 billion yuan, contributing 145 million yuan to the company's investment income under the 2022 equity law. It is expected that this equity transfer will increase the company's investment income at one time and return cash to help reinvest. In addition, the sale of financial assets will also help increase the company's valuation.
Incoming water has improved, coal prices have declined, and recovery is expected to continue in 24 years. In 2023, the company expects to achieve net profit of 1,811 billion yuan (+55.8% year-on-year). The significant increase in performance is due to an improvement in incoming water, an increase in hydropower generation, a drop in coal prices, restoration of thermal power profits, and an increase in renewable energy generation. In 2023, the company's hydropower generation capacity was 11 billion kilowatt-hours (+10.8% year over year), but 2024M1-2's hydropower generation increased by 216% year on year, and hydrological data in the Qingjiang River Basin also improved significantly; 2 1GW thermal power plants in Yicheng, Xiangyang were put into operation in the second half of 2023, which will contribute to performance in 2024.
Water, fire, and landscape storage are developed collaboratively, and there is plenty of room for growth. According to the company's official website, the company plans to have a total installed capacity of 22 GW by the end of the 14th Five-Year Plan, including more than 15 GW of renewable energy. According to the company's financial report, hydropower: Linxi River Hydropower has been included in the 14th Five-Year Plan of Hubei Province; thermal power: falling coal prices continue to restore profits; Scenery: The planned new energy installed capacity exceeded 10GW at the end of the 14th Five-Year Plan, and the CAGR of new energy installed in 22-25 reached 51%. Pumped energy storage: The original Luotian Pingtan project has started, and the Changyang Qingjiang and Hubei Nanzhang projects have been commissioned to build the Three Gorges. The total installed capacity is 4.4 GW, and there is plenty of room for diversified growth.
Profit forecasting and investment advice. The company's net profit from 2023 to 2025 is estimated to be 18.1/28.1/2.96 billion yuan, respectively, and the PE corresponding to the latest closing price is 18.8/12.1/11.5 times, respectively.
The company's current PB (LF) is only 1.06 times. Profits in thermal power and hydropower continue to recover, and there is plenty of room for growth in new energy+pumped storage. Referring to peer valuation, the company was given a PE valuation of 16 times in 2024, corresponding to a reasonable value of 6.89 yuan/share, maintaining the “buy” rating of Hubei Energy.
Risk warning. Project construction has fallen short of expectations; incoming water has fluctuated; coal prices have risen sharply, etc.