The energy transition has begun, coal prices have bucked the trend, electrolytic aluminum is still growing, and green electricity is growing at a high rate. Power Investment Energy is the leading lignite company in Mengdong and Northeast China, and has developed into a comprehensive energy enterprise with integrated “coal, electricity, and aluminum” management. The company's coal business is expected to benefit from an upward shift in price negotiations. The electrolytic aluminum business still has great growth potential. At the same time, it is actively deploying new energy sources to further open up the company's growth space, and is optimistic about the company's future performance growth.
Coal business: Production release is stable, cost advantage is obvious, Changxie price is rising. The company is rich in coal resources, mainly concentrated in the Mengdong region. The main type of coal produced is lignite. Currently, the approved production capacity has reached 48 million tons, production capacity is operating at full capacity, and production release is stable. The group still has nearly 35 million tons of coal production capacity unlisted. The company's pure open pit mining model has created a mining cost advantage far superior to the industry. The cost of tons of coal remains within 90 yuan/ton all year round, far below the industry average, laying a steady profit foundation. The company's share ratio is high (90%), and in early 2024, the price of the company's Changxie coal was uniformly raised to the upper limit of the price range set by the National Development and Reform Commission (300 yuan/ton). The average price bucked the trend and rose slightly in the first quarter of this year.
Electrolytic aluminum business: Self-owned electricity creates low costs. Higher electricity prices in energy-intensive industries are not affected, and there is 350,000 tons of production capacity. As of March 2024, the company has a total production capacity of 860,000 tons of electrolytic aluminum. The next phase of the project will contribute 350,000 tons of production capacity, and is expected to be put into operation in 2025. The company supplies 1.8 million kilowatts of thermal power plants, 900,000 kilowatts of wind power, and 150,000 kilowatts of photovoltaics. As a result, the company's electricity supply and electrolytic aluminum production remain normal in the context of high-energy consumption double control and power restrictions. At the same time, self-power supply also highlights the company's electricity cost advantage and avoids the impact of rising electricity prices in high-energy industries. The company's gross profit and gross margin per ton of aluminum has a comparative advantage in the industry. Short-term risks in aluminum prices have basically been released, supported by “supply reform+double carbon” tight supply for a long time. We expect that the aluminum price center may move upward, and the industry will enter an era of high profit, which is beneficial to the release of the company's performance in the electrolytic aluminum sector.
Power business: New energy installations are growing rapidly, and the transformation of green electricity opens up room for growth. The company currently has 1.2 million kilowatts of thermal power installed in public grid units, and is also actively promoting the layout of new energy power generation. In the past two years, some wind power units have been put into operation and connected to the grid. As of May 2024, the company has 4.552 million kilowatts of new energy installed. We expect the company's new energy generation capacity to increase by nearly 4.4 billion kilowatts in 2024. The company relies on China Power Investment Group, a leading central enterprise for new energy installations. It has unique resource advantages in various areas such as acquisition and approval of new energy projects, installation construction and grid connection, etc., forming a diverse and complementary “landscape and fire”, which is expected to provide long-term growth potential.
Profit forecast and valuation: Considering the increase in the company's coal, aluminum, and electricity business, and profits continue to improve, we expect the company's 2024-2026 revenue to be 293/304/31.4 billion yuan, respectively, and net profit to mother will be 55.29/59.19/ 6.317 billion yuan, respectively, +21%/+7%/+7% YoY; EPS is 2.47/2.64/2.82 yuan, respectively. Based on the closing price of May 22, the company's current PE is 12.6 times lower than the average PE of the coal comparable company, and 11.6 times lower than the new PE average Energy operators can compare the company's average 11.2 times PE; the company's PB is 1.6 times lower than the average PB of coal and electrolytic aluminum comparable companies. Considering that the company's coal, aluminum, and electricity businesses have all increased, profits continue to improve, maintaining a “buy” rating.
Risk warning: (1) risk of coal prices falling beyond expectations; (2) risk of production safety; (3) risk of falling short of expectations for new green power projects; (4) risk that public data used in research reports may be delayed or not updated in a timely manner; (5) risk of measurement errors; and (6) secondary market transaction risk.