Benefiting from lower coal prices, the company's profits have recovered significantly. In 2023, the company achieved revenue of 117.18 billion yuan, an increase of 9.45% over the previous year, and realized net profit of 4.52 billion yuan, compared to 100 million yuan in the same period last year. In the first quarter of 2024, the company achieved operating income of 30.952 billion yuan, down 3.21% year on year, mainly due to Hubei hydropower generation, which squeezed thermal power output; net profit to mother was 1,862 billion yuan, up 64.21% year on year. The sharp increase in profit was mainly due to the year-on-year decline in coal prices on the cost side. In 2023, the company paid 0.15 yuan per share, and the cash dividend ratio was about 44%, maintaining a considerable ratio.
Electricity generation was generally stable in the first quarter, and hydropower output increased sharply year over year. In 2023, the company put into operation 3,695.54 megawatts of power projects throughout the year, including 3,020 megawatts of high-efficiency coal-fired generators and 675.54 megawatts of gas generators. As of December 31, 2023, the company's holding installed capacity was 58,449.78 megawatts, mainly including 46,890 megawatts of coal-fired power generation, 9,094.59 megawatts of gas power generation, and 2,459 megawatts of hydroelectric power generation, accounting for about 80% of the installed capacity of coal-fired power generation. In the first quarter of 2024, the company completed a cumulative total of 56.164 billion kilowatt-hours of power generation, a decrease of about 0.19% over the same period last year. Among them, thermal power generation capacity was 55.152 billion kilowatt-hours, a year-on-year decrease of 0.5%; hydropower generation was 1,011 billion kilowatt-hours, an increase of 24.8% over the previous year; hydropower generation in the Sichuan region increased significantly over the same period last year.
Investment income declined slightly in the first quarter, and revenue from new energy sources had high growth potential. The company's investment income mainly comes from participation in Huadian New Energy and coal mining companies. In 2023, the company achieved investment income of 3.776 billion yuan, a year-on-year decrease of 21.4%, mainly due to the decline in profits from the company's participation in coal mines against the backdrop of declining coal prices. In the first quarter of 2024, the company's investment income in joint ventures was 1,148 billion yuan, a slight decrease of 3% year on year, mainly due to the year-on-year decrease in the country's new energy usage hours and the impact of fluctuations in electricity prices in the first quarter. Huadian Group plans to add 75 GW of new energy installed capacity in the “14th Five-Year Plan”. As the only integrated listing platform for the Group's new energy business, there is still plenty of room for growth in installed capacity and profit levels, which is expected to bring high-growth investment returns to the company.
Profit forecast and investment advice: Considering the overall downward trend in coal prices in 2024, thermal power profits are expected to improve. We expect the company's revenue for 2024-2026 to be 1,248/126.128.7 billion yuan, respectively, and net profit to mother of 60.5/73.6/8.38 billion yuan. Based on the DCF valuation model, we raised the target price from HKD4.62 to HKD5.52, maintaining the “superior to the market” rating.
risks
1) The new installed capacity was lower than expected; 2) the number of hours used was lower than expected; 3) The price of market-based electricity was lower than expected.