Incidents:
The company issued an announcement on the main business conditions from January to May 2024. From January to May 2024, the company signed a new contract amount of 478.47 billion yuan, +6.8% over the same period last year. The amount of new contracts signed in May was $72.06 billion, -5.0% year-on-year.
Comment:
The overall growth of new contracts was steady, and the energy and power business continued to increase rapidly: by type, the amount of new contracts signed by the company in January-May was 2884.3/732.7/97.17 billion yuan, +28.1%/-1.3%/-29.9%. New energy and power contracts continued to increase, or were affected by ecological and environmental protection businesses. Water resources and environment business declined slightly year-on-year. Weak real estate and infrastructure investment growth declined significantly. In May, the energy and infrastructure company declined significantly. The new contract amount for water resources and environment/urban construction and infrastructure was 419.9/86.9/18.98 billion yuan, +7.9%/-43.2%/-10.4% compared with the same period last year.
Investment in water conservancy construction continues to reach new highs. Hydropower development in the lower reaches of the Brahmaputra River is expected to accelerate, and under a high market share, the company is expected to continue to receive generous orders: China continues to accelerate water conservancy shortfalls, and the country completed an investment of 119.6 billion yuan in water conservancy construction in '23, +10.1% over the same period, a record high. China's water conservancy construction investment continued to increase in 24 years. From January to May '24, the country completed 421.3 billion yuan in water conservancy construction, +4.2% over the same period, and the country implemented 924.6 billion yuan in water conservancy construction, +42% over the same period last year. The company is a leading water conservancy and hydropower enterprise. The domestic hydropower construction market share exceeds 65%, and the global large and medium-sized water conservancy and hydropower construction market share exceeds 50%. In 23 years when investment in water conservancy construction reached a record high, the company received rich water conservancy business contract orders. In '23, the company signed a new water conservancy business contract worth 10.73 billion yuan, an increase of 70.4% over the previous year. China's investment in water conservancy construction continues to increase. Combined with the company's high market share in the water conservancy and hydropower sector, it is expected that the company's water conservancy business orders will continue to increase. Approaching the end of the “14th Five-Year Plan”, major water conservancy projects such as hydropower development in the lower reaches of the Brahmaputra River proposed in the “14th Five-Year Plan and Outline of Long-term Objectives for 2035” are also expected to be accelerated, and it is expected that the future will bring rich water conservancy orders to the company.
New energy construction is accelerating, and pumping energy storage projects are being built one after another. The company's high investment in the new energy plan in 24 years is expected to accelerate installation: in the context of green and low-carbon transformation, China will continue to accelerate the construction of a new energy system. According to the China Telecommunication Union, by the end of 2024, the cumulative installed capacity of new energy generation will reach about 1.3 billion kilowatts, accounting for about 40% of the total installed capacity. On ****e National New Energy Administration also issued the “Notice on Doing a Good Job to Ensure High-Quality Development of New Energy Sources”, which aims to improve the consumption capacity of new energy sources to ensure large-scale development of new energy sources.
At the same time, China is also speeding up the construction of pumped energy storage projects. According to Polaris power grid statistics, a total of 25 pumped storage power plant projects made significant progress in May 2024. Of these, 5 pumped storage power plants were started, contracted, and put into operation to generate electricity, and a research report on the feasibility of 1 pumped storage power station was approved. On the one hand, speeding up construction of new energy projects and pumped energy storage projects can bring incremental energy engineering business orders to the company. On the other hand, the company will also speed up self-investment in new energy construction in 24, and the accelerated implementation of high-margin new energy businesses is expected to increase the company's profitability. During the “14th Five-Year Plan” period, the company plans to add 30 GW of wind power installed capacity at home and abroad. During the “14th Five-Year Plan” period, the company plans to approve investment in the construction of pumped storage power plants with an installed capacity of about 23 million kilowatts, with a total investment exceeding 160 billion yuan. The company's new energy plan investment increased 70.8% year-on-year in 24, and the new energy sector is expected to accelerate development during the year.
Profit forecast, valuation and rating: Under the water conservancy shortfall, the company's water conservancy orders are expected to continue to increase, and the accelerated implementation of new energy installations is expected to increase the company's profitability. We maintain the company's net profit to mother of 146.4/164.6/18.33 billion yuan for 24-26, maintaining a “buy” rating.
Risk warning: The progress of new energy construction falls short of expectations, the growth rate of new orders is slowing down, and project repayments fall short of expectations.