Introduction to this report:
The company has disposed of 50% of the shares in Guodian Construction Investment (including the Chahasu coal mine), and profit stability is expected to improve further.
Key points of investment
Maintain the “increase in holdings” rating: Taking into account factors such as asset disposal, the 2024 EPS will be raised to 0.56 yuan (original value 0.50 yuan), and the 2025-2026 EPS will be maintained at 0.56/0.63 yuan. Referring to comparable companies in the thermal power industry, PE was given 13 times in 2024, the target price was raised to 7.28 yuan, and the “gain” rating was maintained.
Incident: The company issued the “Notice on the Transfer of 50% of Guodian Construction Investment's shares to the National Energy Group by private agreement”. The transfer of 50% of Guodian Construction Investment's shares to China Energy Group Western Energy Investment Co., Ltd., a wholly-owned subsidiary of the group, was completed on June 30, 2024.
The significance of implementing an equity disposal is also to enhance the certainty of the company's profits. According to the company's “Notice Concerning the Transfer of 50% of Guodian Construction Investment's Shares and Related Transactions under a Non-Disclosure Agreement to the National Energy Group” in April 2024, the proposed transaction price for 50% of Guodian Construction Investment's shares held by the company is 6.739 billion yuan, corresponding to a PB valuation of 2.79 times, an increase of about 4.39 billion yuan over the book value of the shares. As of April 2024, the target asset of this transaction was the Chahasu Coal Mine, a subsidiary of Guodian Construction Investment, and production was temporarily suspended in accordance with the relevant requirements of the territorial government due to the processing of a mining license. Affected by the shutdown of subsidiary coal mines, China Power Construction Investment's net profit in 2023 was 490 million yuan. We believe that the significance of this equity disposal transaction is not only a short-term one-time benefit, but also the elimination of market concerns about profit disturbances in the Chahasu coal mine.
The increase in majority shareholders' holdings shows confidence in development, and there is plenty of momentum for long-term growth. According to the company's announcement, from October 2023 to June 2024, the National Energy Group increased its A-share holdings by a total of 97 million shares (accounting for 0.54% of the company's total share capital) through centralized bidding transactions, with a cumulative increase of 400 million yuan (excluding commissions and transaction taxes). We believe that this plan to increase holdings shows the controlling shareholders' confidence in the company's future development and recognition of its long-term investment value. The company is rich in resources for construction and reserve projects. We expect that the company's installed capacity is expected to maintain long-term sustainable growth under the support of high capital expenditure: 1) By the end of 2023, the company plans to obtain more than 14 million kilowatts of new energy resources, approve 12 million kilowatts of new energy resources, start construction of 8.3 million kilowatts, and start production of 8.6 million kilowatts; 3) As of the end of 1Q24, the company expects capital expenditure of 99.8 billion yuan, compared with the same period last year. Actual expenditure in 2023 was +5.60 billion yuan (+7.7%).
Risk warning: Installation progress is lower than expected, electricity prices are lower than expected, incoming water is weaker than expected, depreciation calculation exceeds expectations, etc.