Brief performance review

On July 31, the company released its 2024 semi-annual report, achieving revenue of HK$1.224 billion, a year-on-year decrease of 5.3%, net profit of HK$0.395 billion, a year-on-year decrease of 30.4%, and a final dividend of HK$0.023 per share. The dividend ratio remained stable.

Management analysis

Power generation increased 7.4% year on year, and profit declined due to market-based transactions: in the first half of the year, power generation volume was 2.024 billion kWh, up 7.4% year over year. The gross profit margin was 64.2%, down 6.0 pct year on year, mainly due to the increase in the number of projects entering market-based transactions in the first half of the year, which led to a year-on-year decline in settlement electricity prices.

The acquisition of 200MW was completed in the first half of the year, and the share of affordable projects increased to 55%: The company plans to acquire 700-1000MW large-scale affordable photovoltaic projects within 2024, and has completed the acquisition of 200MW affordable photovoltaic projects in the first half of the year. By the end of June 2024, the total scale of power plants owned by the company reached 3.85 GW, accounting for 55.2% of affordable projects, an increase of 7 pcts over the previous year.

The impact of market-based transactions is manageable. Medium- and long-term transactions guarantee the lower yield limit: Currently, various provinces are promoting PV participation in market-based trading, which has an impact on electricity prices in various regions, rising and falling. Most provinces can lock in 80%-90% of electricity through medium- to long-term contracts. The impact of spot trading on yield is manageable, and average settled electricity prices are relatively stable. The company's power plants are still mainly distributed in regions with good consumption conditions. The negative impact on the settlement of electricity prices comes mainly from very few provinces. In the future, the company is expected to guarantee yield targets through more careful acquisition conditions.

Financing interest rates are expected to continue to decline, and the financial situation has improved: due to the current high interest rates on offshore loans, the company increased borrowing from mainland Chinese banks in the first half of the year. By the end of June 2024, 21.9% of the company's bank loans were denominated in RMB, and the real interest rate fell to 4.7%, down 1.4 pct from the end of last year, and is expected to continue to decline in the second half of the year.

Profit Forecasts, Valuations, and Ratings

According to the company's latest power plant operation, the adjusted net profit forecast for 2024-2026 is 10.64 (-14%) /12.41 (-13%)/HK$13.42 (-13%) billion, respectively. The dividend per share for 24 years is estimated to be approximately HK$0.056 per share based on the dividend ratio for 23 years. Currently, the stock price corresponds to 2024 PE/PB/dividend ratio of 6.9 times/0.5 times/6%, respectively, maintaining a “buy” rating.

Risk warning

Subsidy disbursement progress fell short of expectations; grid consumption worsened; exchange rate fluctuated.