Core views:
Coal and electricity reversed losses, Singapore's profits soared, and annual performance increased by 15.8 billion yuan. The company released its 2023 annual report and achieved revenue of 254.4 billion yuan (+3.1% year-on-year) and net profit of 8.4 billion yuan in fiscal year 23. Revenue growth and sharp increase in profit were mainly due to (1) domestic fuel cost -12% YoY; (2) feed-in electricity capacity of 447.9 billion kilowatt-hours, +5.3% YoY; (3) Singaporean business profit of +2.5 billion yuan YoY. The Q4 performance turned into a month-on-month loss, mainly due to an impairment of 3.1 billion yuan and a month-on-month increase in coal costs. Net operating cash flow in 2023 reached 45.5 billion yuan (+40% year over year), a significant improvement.
Net assets to the mother have increased dramatically, and I am optimistic that ROE will continue to recover. Total profit in 2023 was 433 million yuan for coal engines, 777 million yuan for combustion engines, 5.913 billion yuan, and 2,044 billion yuan for wind power and photovoltaics respectively (-5% and +78% year-on-year); net assets returned to mother at the end of the year reached 132.1 billion yuan (including 79.6 billion yuan in perpetual bonds), an increase of 21.7% over the previous year. Looking ahead, steady profit from ancillary services grew rapidly. Net revenue from ancillary services in 2023 was 2.7 billion yuan (+85% year over year). The power generation sector also increased the stability of coal-to-electricity linked profits, and the current ROE continues to recover net assets.
The new 8.7 GW installed capacity exceeded expectations and is expected to maintain a high growth rate in 2024. At the end of 2023, the holding's installed capacity reached 136 GW, of which the scenery was 28.6 GW, accounting for 21%; the additional scenery added during the year exceeded expectations by 8.7 GW. The actual capital expenditure of 60.2 billion yuan was completed in 2023, far exceeding the target plan of 40.2 billion yuan proposed at the beginning of the year; the planned capital expenditure for 2024 was 80.2 billion yuan, of which Scenery's capital expenditure was 64.9 billion yuan, accounting for more than 80%. It is expected that the company's Green Electric installed capacity will continue to grow at a high rate.
Profit forecasting and investment advice. EPS is expected to be 0.71, 0.85, and 1.02 yuan/share from 2024 to 2026 (0.53, 0.68, and 0.84 yuan/share if the impact of perpetual bonds is taken into account), and the latest closing price corresponding PE is 12.66, 10.53, and 8.83 times. Thermal power profits are being repaired, and electricity reform is promoting value reshaping. Referring to comparable company valuations, 15 times PE was given in 2024, corresponding to a reasonable value of 10.66 yuan/share, corresponding to a reasonable value of HK$5.26 per share for H shares (see AH share premium ratio), and the “buy” rating for A/H shares was maintained.
Risk warning. The risk that coal prices will continue to rise; the risk of utilization of hours and project construction falling short of expectations.