CGN Electric Power is the CGN Group's sole platform for nuclear power generation. CGN Group, the controlling shareholder of CGN Power, is a large clean energy central enterprise supervised by the State Council's State-owned Assets Administration Commission, with a shareholding ratio of 57.78%. The company is committed to safe, efficient, stable, reliable, clean and low-carbon nuclear power and energy supply. CGN Power's business mainly includes:
Construct, operate and manage nuclear power plants, sell the power generated by such nuclear power plants, and organize design and scientific research work for the development of nuclear power plants.
The profitability of the core business is stable, and electricity sales contribute the most to revenue. The total revenue from electricity sales in 2023 was RMB 62,517 billion, accounting for 75.7% of the annual revenue. There is significant growth momentum on the electricity revenue side. The gross profit from electricity sales in 2023 was 28.665 billion yuan, or 45.85% gross margin. The cost of nuclear fuel, the main source of electricity revenue, remained low, increasing 0.67% year over year in 2022.
The company's finances are steady, and cash dividends are growing steadily. CGN Electric Power has maintained dividend growth for many years. In mid-2023, the company paid a final dividend of RMB 0.087 (tax included) per share at the end of 2022, and the dividend ratio was 44.3% based on net profit attributable to mother.
All dividends for 2023 will be paid after approval by shareholders at the company's 2023 shareholders' meeting, and are expected to be paid around July 10, 2024.
The “twin stars” of nuclear power steadily account for half of the country. By the end of 2023, CGN Power's 27 operating nuclear power units were all operating safely, with an installed capacity of 30,568 megawatts, an increase of 4.04% over 2022, accounting for 43.48% of the country's total installed capacity of nuclear power in operation and under construction. Projects under construction are progressing in an orderly manner, providing strong support for the company's future medium- to long-term development, and optimistic about the company's future growth potential. The installed capacity of the company's nuclear power plants is expected to grow steadily from 2024-2028, with an average of 1-2 units being put into operation each year.
Extending the life of nuclear power plants is the only way to achieve net zero emissions by 2050. The company's cumulative feed-in electricity volume in 2023 reduced standard coal consumption by about 64.6722 million tons and carbon dioxide emissions by about 176.4567 million tons. According to the International Atomic Energy Agency report, extending the life of global nuclear power plants by 10 years will add 26,000 terawatt-hours of low-carbon electricity to the grid over the next few decades. According to the company's announcement, the average depreciation period for second-generation units is 25 years, the design period is 40 years, and the life span of operation can be extended after modification and evaluation after expiration. The operating period exceeds the depreciation period, and future growth capacity can be expected to be stable.
Profit forecast and investment advice: We expect the company's main operating income for FY24-26 to be 871.24/919.53/97.049 billion yuan, respectively, with corresponding net profit of 162.27/177.84/19.342 billion yuan, corresponding EPS of 0.17/0.20/0.23. Due to the steady rise in the company's dividends and the steady decline in debt ratio, we used DCF for valuation estimates. The target price was HK$3.27 per share, which gave it an “superior to market” rating for the first time.
Risk warning: Electricity demand falls short of expectations; progress of nuclear power projects falls short of expectations; risk of safe operation of nuclear power.