Incident: The company announced that it intends to issue A-share convertible corporate bonds to unspecified targets to raise no more than 4.9 billion yuan for the construction of Guangdong Lufeng Nuclear Power Plant Unit 5 and 6 projects. The two projects started in September 2022 and August 2023, respectively. They are expected to be officially put into operation in 2027 and 2028, and the internal return on project capital is expected to reach 9%.
The issuance of convertible bonds will help optimize the financial structure. If issued at current prices, EPS is expected to be diluted by about 2%. The company's balance ratio for 2021/2022/2023/2024Q1 is 62.27%, 61.39%, 60.19% and 59.82%, respectively. This offering will help improve the company's balance and liability structure and optimize financing costs. If distributed at the current price, the EPS is expected to be diluted by about 2%.
Nuclear power units are the company's core profit asset, and the commissioning of the units supports the steady growth of the electricity sales business. The company achieved operating income of 19.181 billion yuan in 24Q1, an increase of 4.88% over the previous year; realized net profit to mother of 3.64 billion yuan, an increase of 3.38% over the previous year. In terms of revenue structure, the company's electricity sales revenue in '23 was 62,517 billion yuan, accounting for 75.73% of the company's total revenue of 82,549 billion yuan in '23. Feed-in power reached 167.072 billion kilowatt-hours for the full year of '23, an increase of 6.78% over the previous year, mainly due to Fangchenggang Unit 3 being put into operation in 2023Q1 and the low overhaul base for Taishan Unit 2 in the third quarter in '22.
Fangchenggang Unit 4 was put into operation at 24H1, maintenance of Taishan Unit 1 was completed, and the company's performance improved steadily in 2024. In terms of the commissioning of the new unit, Fangchenggang Unit 4 was put into operation on May 25, 2024, and the capacity of the conveyor assembly machine was increased from 30568 MW to 31,756 MW.
In terms of electricity prices, the electricity price estimate for Fangchenggang Unit 4 is consistent with Fangchenggang No. 3. According to the latest accounting standards, the power generation during the previous commissioning phase was directly included in operating income, and no depreciation was applied. Therefore, the profit margin during the commissioning period of the project was extremely high. Referring to the profit performance of Fangchenggang Unit 3 after it was put into operation, it is expected that Unit 4 will also contribute high profits throughout the year. In terms of in-service unit maintenance, in January 2023, Taishan Unit 1 once again entered the material replacement and overhaul period and research experiments. At the end of November 2023, Taishan Unit 1 was officially restarted, which means that EPR technology has successfully completed related tests and assessments, and Taishan unit operation will return to normal in 2024.
The company is currently constructing 6 nuclear power units and has approved 4 units to be built (including nuclear power units commissioned and managed by the controlling shareholder). It is expected that the company's nuclear power installations will maintain steady growth from 2024-2030. Considering that the nuclear power construction cycle will take 60 months, the company is expected to start production in the next few years as follows: 1 unit will be put into operation in 2025 (Huizhou No. 1), 2 units will be put into operation in 2026 (Huizhou No. 2 and Cangnan No. 1), 2 units will be put into operation in 2027 (Cangnan No. 2 and Lu Feng No. 5), and 1 unit (Lu Feng 6) will be put into operation in 2028. In addition, the company's management approved 4 units to be built, namely Ningde 3 and 4 and Huizhou units 3 and 4. It is expected that construction of these units will begin one after another this year and next two years, and will be put into operation one after another from 2029-2030. This means that by 2030, the company will put into operation 1-2 nuclear power units every year, which is expected to bring about stable profit growth with high certainty.
The company is actively planning plans to acquire Huizhou and Cangnan nuclear power assets. The Group promised to “inject nuclear power assets into listed companies within five years after the start of the nuclear power project and after the project meets the injection conditions for the reserved business owned by the Group in China.” According to the company's announcement, the company is actively planning plans to acquire Huizhou and Cangnan nuclear power assets.
Profit forecast and valuation: We maintain the company's 2024-2026 net profit forecasts of 118.7 billion yuan, 124.00 billion yuan, and 13.07 billion yuan, respectively, with year-on-year growth rates of 10.7%, 4.4%, and 5.4%, respectively. The PE corresponding to the current stock price is 19, 18, and 17 times, respectively. Assuming that the 2024-2026 dividend rate remains 45%, the company's dividend rates for 2024-2026 are 2.6%, 2.7%, and 2.9%, respectively, maintaining a “buy” rating. The dividend rates of the Hong Kong stock CGN Power for 2024-2026 are 3.2%, 3.3%, and 3.5%, respectively. It is recommended to pay attention to CGN Power.
Risk warning: 1) Project commissioning progress falls short of expectations. 2) Decline in electricity prices, etc.