The core power platform of the National Energy Group, Huoshui, and Scenery are developing collaboratively. The company is a comprehensive energy platform under the National Energy Group. The National Energy Group was restructured in 2017 from the former Shenhua Group (the largest domestic coal company) and the former Guodian Group (one of the five major power generation groups), and has a coal-power integration background. As the group's core power listing platform, the company clearly built the group company's “pioneer in conventional power energy transformation, the main force in new energy development, and a leader in world-class enterprise construction”, and is developing collaboratively. By the end of 2023, the company had 105.64 million kilowatts of installed power, including 7279, 1,495, 929, and 8.6 million kilowatts of thermal power, hydropower, wind power, and photovoltaics, respectively.
Overall, we analyzed that the company's core advantage is that multiple sectors complement each other's performance and provide higher performance stability. In particular, the cash flow value of Daduhe Hydropower and the cost advantages brought about by quasi-coal-power integration give the company greater resilience to risks and make the company's performance more “decyclical”.
Hydropower: The value of the Dadu River needs to be urgently reassessed, and the sharp rise in volume and price has become a catalyst. Judging from the equity installed capacity, the company is actually the fifth largest listed hydropower company in China. It has 2/3 development rights in the Dadu River Basin, and is also one of the few hydropower companies in China where installed capacity is still growing. We believe that the current stock price does not fully reflect the high valuation of hydropower. By the end of 2023, the company had a holding of 14.95 million kilowatts of hydropower installed capacity, second only to Changjiang Electric Power, Huaneng Hydropower, SDIC Electric Power, and Sichuan Investment Energy.
China Neng Daduhe (80% shareholding) owns 11.74 million kilowatts of installed capacity, accounting for 79% of the company's total hydropower installation. Currently, the net profit level of Guoneng Dadu River is at the level of 2 billion yuan. We expect that in 2027, the profitability of Guoneng Dadu River will have a lot of room to rise due to the dual effects of improved incoming water and increased efficiency from the Longtou Reservoir Power Station. In the long run, we analyzed that the market did not fully understand the absolute low covariance attributes of hydropower assets, and the valuation revaluation is not over yet. The entire hydropower sector has long-term allocation value.
Thermal power: Quasi-coal-power joint ventures bring unique advantages, and the price of capacity electricity is expected to increase valuation. Almost all of the company's thermal power units are coal-fired power. In 2019, the assets of the restructuring with China's Shenhua account for more than 70% of the company's coal-fired power units. They have coal-power joint ventures, and the coal price and cost are relatively stable, which is the most important characteristic of the company's coal power. In addition, the company's fleet is mainly concentrated in areas where electricity is tight, such as East China. High-parameter large units account for the leading share of the industry, and also provide the company's comparative advantage. Capacity electricity prices have changed the coal and electricity business model, which has substantial benefits for the company. Although electricity volume and electricity prices are still a fundamental factor in determining the profits of coal and power companies under current compensation, the compensation ratio will continue to increase after 2026, which will help stabilize coal and electricity performance, restore utility attributes, and lead to a restructuring of coal and electricity valuations.
New energy: 14535 GW high specification target, selected projects, multiple complementary high quality development. Under the dual carbon strategy, the green power transformation of various power groups is accelerating. As the group's core power platform, the company plans to add 35 GW of new energy targets in the 14th Five-Year Plan. Although the new energy industry currently has difficulties such as consumption and electricity prices, with the accelerated introduction of green power policies, the new energy industry may see the dawn. As the main force in new energy development under the National Energy Group, the company is expected to take the lead in benefiting from marginal changes in industry policies.
Profit forecast and valuation: Based on the current electricity market environment, coal supply and demand, and the company's 14th Five-Year Plan and ongoing construction projects, we expect the company's net profit to be 75, 8, and 9.6 billion yuan respectively in 2024-2026, and the current stock price corresponding to 2024-2026 is 13, 12, and 10 times PE, respectively. Under the neutral conservative assumption, the company's intrinsic value is 440 (thermal power) +480 (hydropower) +420 (new energy) -200 (other sectors, etc.) = 114 billion yuan, and there is still 20% room for improvement from the current market value. The company attaches great importance to shareholder returns and is the first thermal power state-owned enterprise to execute semi-annual equity allocations. Under the state-owned enterprise reform assessment upgrade, the company may assume the role of pioneering reform. Covered for the first time, a “gain” rating was given.
Risk warning: The rise in coal prices exceeded expectations, the depreciation exceeded expectations, and the installed capacity of new energy fell short of expectations.