Key points:

2023-2024Q1 revenue is growing steadily, and short-term pressure on the wind power sector affects profit performance

In 2023, the company achieved operating income of 14.695 billion yuan, an increase of 2.63% year on year, and realized net profit to mother of 2.623 billion yuan, an increase of 1.11% year on year. In 2023, the company's wind power sector experienced a decline in feed-in power due to weak incoming wind, and the company's thermal power business output increased to achieve steady revenue growth. With 2024Q1, the company achieved operating income of 3.088 billion yuan, a year-on-year increase of 0.52%; net profit to mother was 0.526 billion yuan, a year-on-year decrease of 1.14%. The company's feed-in electricity volume increased 2.27% year on year in the first quarter of 2024. Among them, the wind power business was affected by wind conditions, and the feed-in electricity volume decreased by 2.3% year on year. The thermal power business continued to improve, and feed-in power increased further, promoting positive revenue growth. The company's profit side was suppressed to a certain extent in the first quarter of 2023 and 2024, mainly due to weak inflows and increased depreciation of fixed assets, which clearly put pressure on wind power business profits. In 2023, the net profit of Funeng New Energy, the company's holding subsidiary, fell 23.3% year on year, and Funeng Strait fell 31.14% year on year.

Tight electricity supply and demand are boosting thermal power output, and falling costs are expected to increase the profits of the thermal power sector. By the end of 2023, the company controlled the installed capacity of power generation operated by the company reached 5.994 million kilowatts. Among them, coal and electricity installations are 26.16 billion kilowatt-hours, and gas and electricity installations are 1.528 million kilowatts, accounting for a total share of 69.1% of the total installed capacity. About 50% of the company's coal power units are cogeneration units, which have high comprehensive utilization efficiency and good economy. The company's gas turbine is a peak shaving unit in Fujian Province, which can obtain stable and good profits. In the past two years, the phased supply and demand of electricity contributed to the continuous increase in the company's thermal power output. In 2023, the company's coal power unit usage hours increased 331 hours year on year, and gas power unit usage hours increased 800 hours year on year. Combined with declining fuel costs, the company's thermal power business profit increased significantly. In 2023, the net profit of Hongshan Thermal Power, a holding subsidiary of the company, increased by 33.41% year on year, and the net profit of Jinjiang Gas and Electricity increased by 18.57% year on year. At present, the Dongzhongqiao Thermal Power Phase I 2×0.66 million kilowatt thermoelectric project, a thermal power project reserved by the company, has been approved. It is expected that it will bring great performance flexibility to the company's thermal power business after completion and commissioning.

The wind power project has high-quality resources, and the integrated layout of wind and solar storage provides long-term growth momentum. The company's wind power installations rank among the highest in Fujian Province, and the project is located in an area with high quality resources. By the end of 2023, the company's installed wind power reached 1.809 million kilowatts, accounting for 23.8% of the installed wind power in Fujian Province; in 2023, the company's wind power generation capacity was 5.5 billion kilowatt-hours, accounting for 25.5% of Fujian's wind power generation. In 2023, the utilization hours of the company's wind turbines were 3038 hours. Among them, the utilization hours of land fans declined due to weak incoming wind, reducing 403 hours and 126 hours respectively from 2022 and 2021, but the overall utilization hours of the company's wind turbines were still 813 hours higher than the average utilization hour of wind power in the country.

Looking ahead to 2024, we are optimistic that the improvement in wind will drive the recovery of the company's wind power sector's performance. Currently, Changle Haifeng 0.65 million kilowatts of wind power projects stored by the company has obtained permission to work in the early stages of development. After future projects are approved and completed and put into operation, the scale of the company's wind power installed will be further increased. In addition, the company is actively developing a savings business. Among them, Magnolia's savings of 1.4 million kilowatts, Huashan's savings of 1.4 million kilowatts have been approved, and Dongtian has obtained permission to work in the early stages of project development. The company's integrated layout of fire and solar storage is expected to further consolidate the company's leading position in the region, and the company has sufficient momentum for long-term growth.

Profit forecasting and investment advice

The company is a leading electric power company in Fujian Province. Thermal power installations are mainly cost-effective cogeneration units. Profits are expected to increase under the downward trend in fuel costs. The scale of wind power installed is the highest in Fujian Province and the geographical location is superior. The profit of the wind power sector is pressured by multiple factors in the short term, and the wind power sector's profit is pressured by multiple factors. Optimism about wind restoration will bring about a recovery in the company's performance. In the long run, with the completion and commissioning of energy projects such as stored thermal power, wind power, and pumping, the company has sufficient momentum for long-term growth, and the leading position in the region is expected to be further consolidated.

We have made predictions for key business segments, with the following assumptions:

1. Thermal power sector: Assuming that the Dongqiao Thermoelectric Phase I project will be completed and put into operation in 2026, contributing to the increase in power generation; more than half of the company's coal-fired power units are cogeneration units, which are economical and are priority generators. In the context of continuing tight balance between electricity supply and demand, assuming that the company's existing coal power units operate steadily; assuming that coal prices fall slightly in 2024-2026; the company's gas units are peak-shifting units in Fujian Province and are expected to maintain good and stable earnings.

2. Wind power sector: Assuming that the company's offshore wind competition project is put into operation in 2026, contributing to the increase in power generation; if wind power consumption in Fujian Province is good, assuming that the company's existing wind turbines are repaired steadily over an average of 100 hours per year; the company's stock wind power projects are approved/constructed before August 2021, and the feed-in electricity prices for the company's stock wind turbines are expected to remain stable.

We expect the company's net profit for 2024/2025/2026 to be 3.064/3.286/3.656 billion yuan, a year-on-year growth rate of 16.78%/7.25%/11.26%; by the close of July 24, the company's current stock price corresponding to PE was 9.37/8.74/7.85 times, respectively. Covered for the first time, the company was given an “increase in weight” rating.

Risk warning

The risk that the incoming wind situation falls short of expectations; the risk of project progress falling short of expectations; the risk of falling electricity prices in the market; the risk of rising coal prices; and the risk of changes in industry policies.