Maintaining a “buy” rating: In view of Datang New Energy's more cautious expansion prospects and downward pressure on new energy electricity prices, we lowered our 2024-2025 earnings per share by 32.7% and 41.4% to RMB 0.348 and $0.395, respectively. We gave a 2026 earnings forecast of RMB 0.441 per share. Based on our 2024 price-earnings ratio of 6.0 times, our target price dropped to HK$2.30 (previously HK$3.10).
Although earnings in 2023 fell short of expectations, more prudent expansion improved the balance sheet. Datang New Energy recorded shareholder profit of RMB 2,753 billion in 2023 (a year-on-year decrease of 21.9%), which fell short of our expectations, mainly due to lower than expected electricity prices and higher than expected asset impairment. The company added 1.2 gigawatts of wind power and solar installations during the year (lower than our expectations). Benefiting from lower equipment costs, the company's capital expenditure was better controlled at RMB 5.893 billion. Datang New Energy plans to add 2.0 gigawatts of installed capacity in 2024, and by the end of 2023, the company is building a new energy installed capacity of 1.8 gigawatts. Thanks to a more prudent expansion strategy in 2023, the company recorded steady operating cash of RMB 7.140 billion, and the leverage ratio continued to decline (net balance ratio fell 3.6 percentage points to 169.1%).
The renovation of old wind farms is still a priority: Datang New Energy's old wind farm has excellent wind resources and has great potential for the renovation of old wind farms. According to management, the company currently has about 1.96 gigawatts of old wind farms in eight regions (such as Liaoning, Inner Mongolia, Shandong, and Heilongjiang) that meet the requirements of “big generation to small”. We anticipate that by the end of 2025, the scale of old wind farms that meet the “big generation to small” conditions will reach about 4 gigawatts.
According to experience, on average, the renovation of old wind farms can increase the installed capacity to two times the original one and the power generation to three times the original.
Downside risks: Electricity demand falls short of expectations, delays in project launch, regulatory and policy changes unfavorable to independent power generation companies, extreme weather conditions, etc.