Domestic nuclear power construction leaders are expected to fully benefit from this round of nuclear power capital expenditure to accelerate large-scale development of renewable energy and face many challenges. Nuclear power can be used as a clean baseload power source. Nuclear energy ① is a clean and efficient non-fossil energy source. It can be used as a baseload energy to replace fossil energy. At the same time, ② can also operate with appropriate peak adjustment to match the use of renewable energy, which is of great significance for the construction of new power systems in the eastern coastal region.
Since 2019, China's nuclear power has been approved and restarted, and it will be accelerated in 2022 to 2023. After the Fukushima nuclear accident in Japan in 2011, countries around the world tend to be cautious about the construction of nuclear power plants. Since 2018, many third-generation units have been put into commercial operation, and the safety and reliability of third-generation units has been confirmed. In July 2019, the National Energy Administration clearly stated that the Shandong Rongcheng, Fujian Zhangzhou, and Guangdong Taipingling nuclear power projects were approved and commenced, marking the official restart of nuclear power approval. Since the 14th Five-Year Plan, the nuclear power policy has turned positive. The number of nuclear power units approved in a single year from 2022 to 2023 reached 10.
The entire construction cycle of a nuclear power plant project generally takes 10 years, of which the main project generally takes 5 years.
Considering that China's nuclear power was approved and restarted in 2019, the total number of nuclear power units approved in China reached 33 units in 2019-2023. We expect the rise in nuclear power capital expenditure to accelerate from 2024. For example, in 2023, China's nuclear power investment amount will be 94.9 billion yuan, +40% year over year, and +25% year over year in January to April 2024. China Nuclear Construction has the world's leading nuclear power construction capacity and is expected to fully benefit from the acceleration of this round of nuclear power capital expenditure. By the end of 2023, a total of 88 nuclear power units have been built, 62 of which have already been put into operation, and 26 units are under construction. The controlling shareholder is Taishan Beidou of China's nuclear power industry, and the synergy is obvious.
The global nuclear power development trend is clear. As of January 2024, China's Nuclear Power Nuggets “Belt and Road” market had 58 nuclear power reactors under construction worldwide, with a total net installed capacity of 59.87 GW, of which the total net installed capacity outside of China was 36.14 GW, and the total net installed capacity outside of China accounted for 60.4%. Against the backdrop of the acceleration of the clean energy transition and continuous fluctuations in the international energy market, the global nuclear power development trend is clear. According to the National Energy Administration's plan, by 2030, countries along the “Belt and Road” will build 107 new nuclear power units, adding a total of 115 GW of installed nuclear power units, accounting for 81.4% of the world's nuclear power market other than China. Nuclear power goes overseas to tap into the “Belt and Road” market.
China Nuclear Construction: Nuclear power engineering construction has entered a booming stage, and it is expected that the impact of credit impairment will decline, and nuclear power project construction will enter a booming stage. The company's nuclear power engineering grew from 11.922 billion yuan in 2014 to 23.926 billion yuan in 2023, with a CAGR of 8.0%, of which the nuclear power engineering business did not grow in 2014-2021 due to nuclear power approval. The 2022 nuclear power engineering business revenue was 16.748 billion yuan, +40% year over year, and the 2023 nuclear power engineering business revenue was 23.926 billion yuan, +43% year over year.
The company's net profit due to credit impairment in the early period was greatly affected by credit impairment. In 2019-2023, the company's net ratio of credit impairment to mother was between 70-90%, far higher than other construction state-owned enterprises, and the potential profit elasticity was high.
Investment suggestions: We are optimistic about the company ① leading domestic nuclear power construction company, which is expected to fully benefit from the acceleration of this round of nuclear power capital expenditure; ② the net profit returned to the mother in the early period was greatly affected by credit impairment, and potential profit flexibility is high; ③ the global nuclear power development trend is clear, and the “Belt and Road” market for China's nuclear power development. We expect the company's net profit to be 2,405, 28.19, and 3.237 billion yuan respectively for 2024-2026. The dynamic PE corresponding to the current price is 10x, 9x, and 8x, respectively, covered for the first time, and given a “recommended” rating.
Risk warning: Nuclear power approval falls short of expectations; nuclear power overseas falls short of expectations; safety risks of nuclear power projects; risk of credit impairment.