1Q24 net profit to mother +2.5% YoY, maintaining profit forecast and target price Longyuan Electric Power released a quarterly report. 1Q24 achieved revenue of 9.88 billion yuan (+0.1% YoY), net profit to mother of 2.39 billion yuan (+2.5% YoY), and deducted non-net profit of 2.40 billion yuan (+4.5% YoY). The year-on-year decline in wind speed partially offset the increase in installed wind power. Maintaining the profit forecast, we expect the company's net profit to be 72/85/98 billion yuan in 2024-26. The target price for A-shares was RMB 20.64, based on 24xPE in 24 years, with a 4x premium over the comparable average; the target price for H shares was HK$10.43, based on the 24-year 11xPE, which is higher than the average PE value of 10x in the past three years. The premium reflects the potential for installed capacity growth and expectations for improved asset quality. We maintain a “buy” rating for both A/H shares.
Average wind speed decreased year-on-year, and PV continued to grow at a high rate
1Q24's electricity generation capacity was +8.3% year over year to 212 billion kilowatt-hours. Among them, wind power was +1.5% to 17 billion kilowatt-hours, and the average number of hours used decreased by 14 to 640 hours year over year. Hebei/Fujian/Heilongjiang/Shaanxi were weak, but Guizhou/Guangxi/Yunnan/Jiangsu had the highest growth. Thermal power increased by +11.3% to 2.6 billion kilowatt-hours. The average number of hours used increased by 140 hours to 1,377 hours over the same period last year, mainly due to the increase in the thermal power load rate in Jiangsu Province. Photovoltaics and other renewable energy sources increased +233% to 1.6 billion kilowatt-hours, mainly due to the rapid growth in the scale of PV installations.
Development indicators continue to be implemented, and new installations are expected to accelerate
1Q24 added 562 MW of holding installed capacity, including 26 MW of wind power, 58 MW of PV, and acquired 478 MW of new PV. As of the end of March, the company held a total of 36.16 GW of installed capacity, including 27.78 GW of wind power, 6.5 GW of photovoltaics and other renewable energy sources. In 2024, the company plans to start 10 GW of new energy projects and put into production 7.5 GW. Considering the company's project reserves and construction progress, we expect 2.6/3.5 GW of wind power installed and 4.9/8.1 GW of PV installed capacity in 24-25, adding a total of 30 GW of installed capacity in the “14th Five-Year Plan”.
The valuation premium reflects installed capacity growth potential and asset quality improvement expectations. Our target valuation for Longyuan Electric Power A shares (001289 CH) is 24xPE in 24, which is 20x higher than Wind's agreed expectations; the target valuation for H shares (916 HK) is 11xPE in 24, which is higher than the average PE value of 10x in the three years of the company's history. We believe that the valuation premium mainly reflects: 1) the growth rate of the company's new wind power and photovoltaic installations and electricity in 24-25 is expected to show an upward trend, giving full play to its resource reserve advantages; 2) the company is expected to significantly benefit from the resolution of the problem of green power subsidy arrears; 3) the “big generation to small” transformation of wind power caused impairment losses in the early stages, but it is expected to increase the profitability of the company's stock projects in the future.
Risk warning: The wind fell short of expectations; electricity abandonment rates rebounded; coal prices rose; subsidy payments fell short of expectations.