Incident: According to the Hong Kong Stock Exchange, on August 15, Great Wall Life Insurance Co., Ltd. (hereinafter referred to as “Great Wall Life”) increased its holdings of Datang New Energy by 5 million shares, involving about HK$10.29 million. After increasing its holdings, Great Wall Life recently held 0.127 billion shares of Datang New Energy, with a shareholding ratio of 5.08%.

State-owned insurance capital increased the company's shares to 5%, and the company's value was deeply recognized. According to public information, Great Wall Life Insurance was founded in 2005, and the actual controller is the Beijing Xicheng District State-owned Assets Administration Commission. This increase in holdings reflects state-owned insurance capital's recognition of the company's long-term value. In our 32nd weekly report, we analyzed that under the new accounting standards and new insurance contract standards, the asset side is in demand for low-impact dividend equity assets; at the same time, the Ministry of Finance lengthened the ROE assessment cycle for state-owned insurance capital, prompting them to prefer low-level, valuable assets. Specifically, on the capital side, in April 2024, the new “National Nine Rules” clearly and vigorously promoted the entry of medium- to long-term capital into the market and continued to expand long-term investment strength. Objectively, changes in standards and a series of national policies have created an environment for insurance capital to participate in the stock market.

We believe that the entry of insurance capital into the market, or a preference for electricity assets such as hydropower and new energy, is on the one hand in line with the country's dual carbon strategy; on the other hand, these assets have the characteristics of almost no variable costs and cash flow far greater than net profit. According to incomplete statistics, since the beginning of the year, insurance institutions have increased their holdings of listed companies to 12 (7 of which are listed by Great Wall Life), focusing on utilities (environmental protection) and transportation. Hong Kong stocks are too high. We expect long-term capital such as insurance capital to become important incremental capital in the stock market, while the undervalued Hong Kong stock green power may continue to receive support.

Datang Group's flagship new energy platform occupies a high-quality wind farm in Sanbei to welcome new and large generations. The company is the core new energy platform under the Datang Group. Datang Group promises that the company has priority options and purchasing rights for its domestic new energy business; the company's subsequent new energy development is expected to receive group support. On the other hand, the company initially focused on cultivating regions with excellent Sanbei Wind resources, and resource endowments are prominent in the current situation where high-quality wind farms are scarce. In March 2024, the State Council issued a notice on the “Action Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-in”, which once again mentions improving standards for wind turbines, photovoltaic equipment and product upgrades and decommissioning. According to the announcement, the company's wind power installed capacity in 2010 and before was 4.028 million kilowatts. Since the power of a single unit was generally less than 1.5MW before 2010, 4MW has become mainstream, the “big generation to small” transformation policy for old wind farm fans below 1.5 MW may free the company from the shackles of old existing units and completely renew its operating efficiency.

In addition to accounts receivable, we analyzed that another important factor limiting Green Power's stock price is market concerns about the yield of new projects. Behind this, the disadvantages of unstable new energy sources were revealed too soon, and the pressure on power system consumption exceeded expectations. At the current point of analysis, the green power sector actually has a negative impact, but the response has been quite adequate. The benefits are gradually accumulating, and the logic of the industry's prosperity and heavy snow has not changed. The biggest undercard of the new energy industry is the hard restraint of the dual carbon strategy. Currently, the country's attitude is still firm, and long-term demand is worth looking forward to. With support from multiple supporting policies such as chaos remediation, upstream price reduction in the industrial chain, government licensing contracts, and green power demand expansion, the return on the operating side is expected to move closer to the yield of stable utilities. Relevant policy advantages are expected to be a catalyst for the company's trending market.

Profit forecast and valuation: We maintain the company's net profit attributable to the parent company's owners in 2024-2026 at $2.938, $3.182, and $3.505 billion, respectively. Excluding interest on perpetual bonds of about 0.5 billion yuan, the current stock price is 6.0, 5.5, and 4.9 times PE for 2024-2026, respectively; the current PB is only 0.71 times, lower than Longyuan Electric (Hong Kong stock, 0.76x) and CGN New Energy (0.77x).

The company's current valuation level is still at an historically low level, maintaining a “buy” rating.

Risk warning: Policy implementation falls short of expectations, power abandonment exceeds expectations, and risk of impairment of accounts receivable.