Recommended logic: 1) The State Council has taken many measures to help green power consumption, and future price mechanism improvements are expected to guarantee reasonable profits for green power companies; 2) sufficient resource reserves, and 2024-2025 may peak production, with 7.5 GW and 11.5 GW respectively. Guoneng Group's 21.4 GW of new energy assets are expected to be injected; 3) Power generation capacity is growing steadily, and “from big generation to small” is conducive to improving operational efficiency.
There are many measures to help green electricity consumption, and the price mechanism is expected to improve. The State Council issued the “2024-2025 Energy Conservation and Carbon Reduction Action Plan”, which has taken a number of measures to help consume green electricity. In recent years, UHV construction has accelerated. The line length is expected to exceed 50,000 kilometers in 2024, and the installed capacity of energy storage will increase. The policy target is that by 2027, the scale of savings and operation will reach more than 80 million kilowatts, the demand side response capacity will reach more than 5% of the maximum load, and the consumption capacity will continue to improve. New energy market entry transactions are trending, and the price mechanism is expected to be further improved to guarantee reasonable profits for green power companies. At the same time, the environmental value of green electricity is gradually becoming prominent, and the environmental premium for green power transactions in the State Grid Corporation's business area is increasing year by year.
The installed capacity remains high, and the distribution of resources is excellent. As of the first quarter of 2024, the company held a total installed capacity of 36.2 GW, including 27.8 GW of wind power and 6.5 GW of installed capacity of other renewable energy sources such as photovoltaics.
In 2023, the company added 54 GW of resource reserves, added 22.8 GW of development indicators, and sufficient reserve projects. During the “14th Five-Year Plan” period, the company aims to add 30 GW of new energy installed capacity. In 2024-2025, it may start production of 7.5 GW and 11.5 GW respectively, leading to a peak in production. At the same time, Guoneng Group is expected to inject a total of 21.4 GW of new energy assets, which will strongly support the increase in the company's installed capacity. The company's resource distribution is excellent. Most of the company's wind power projects are located in the Sanbei region with high resources. The number of hours used by wind power is 121 hours higher than the national average.
Power generation is growing steadily, improving operational efficiency “from big to small”. The company's power generation capacity in 2023 was 76.22 billion kilowatt-hours, up 7.9% year on year, including 4.55 billion kilowatt-hours of photovoltaics, etc., up 159.9% year on year, with impressive growth rate. The “big generation and small” wind farm project will effectively reduce fan costs. The capacity can be expanded to 2-3 times the original capacity. The potential increase in the company's stock transformation is about 5 GW. Asset impairment affects the company's profits in the short term, and is conducive to improving the overall operating efficiency of the unit and increasing the level of profit in the long term.
Profit forecasting and ratings. The company's net profit for 2024-2026 is estimated to be 73.4/84.1/9.65 billion yuan, respectively, and EPS of 0.88/1.01/1.15 yuan, respectively. Considering that the company's installed capacity continues to grow at a high rate, “using big generation and small” to improve operational efficiency, and future growth is high, the company was given 9 times PE in 2024, corresponding to a target price of HK$8.52 (1 HKD = 0.93 yuan), and for the first time, coverage was given a “buy” rating.
Risk warning: Risks such as lower installation progress than expected, feed-in tariffs falling short of expectations, and subsidy payments falling short of expectations.