What's new
Shaanxi Coal Industry announced on September 5 that it has signed an Asset Transfer Agreement with its controlling shareholder Shaanxi Coal and Chemical Industry Group Co., Ltd. ("Shaanxi Coal Group"), in which Shaanxi Coal Group intends to transfer its entire stake in Shaanxi Coal Power Group Co., Ltd. to Shaanxi Coal Industry.
Comments
Shaanxi Coal Power Group's installed power capacity in operation is 9.42mn kW, mainly thermal power. As of end-1Q24, Shaanxi Coal Group held an 88.65% stake in Shaanxi Coal Power Group, which had 9.42mn kW of controlled installed power capacity (including 9.02mn kW of thermal power) and 6.23mn kW of attributable installed power capacity. These power generation facilities are mainly located in Hunan, Henan, Shaanxi and Shanxi.
Business operation of Shaanxi Coal Power Group: In 2023, its installed power generation capacity reached 34.94bn kWh and electricity sales volume was 32.66bn kWh, with an average electricity price of Rmb0.437/kWh. In 1Q24, installed power generation capacity was 9.86bn kWh and electricity sales volume was 9.24bn kWh, with an average electricity price of Rmb0.424/kWh.
Shaanxi Coal Power Group registered revenue of Rmb15.25bn and net profit of Rmb1.53bn in 2023. As of 1Q24, Shaanxi Coal Power Group had total assets of Rmb34.56bn and net assets of Rmb12.50bn.
Upbeat on power generation growth: According to Shaanxi Coal Group and public information disclosed by the government, Shaanxi Coal Power Group's power projects under construction and planned include a 2mn kW coal-fired power project in Miluo, a 2mn kW coal-fired power project in Shanggao, a 2mn kW coal-fired power project in Yiyang, a 2mn kW coal- fired power project in Xinyang, a 1.32mn kW coal-fired power project in Shimen, and a 200,000kW wind power project in Pingqiao. We expect Shaanxi Coal Power Group's power business to grow further as more power units start operation.
If Shaanxi Coal Power Group is to be injected into Shaanxi Coal Industry, it will help enhance the company's earnings and enhance stability in the long term. If Shaanxi Coal Power Group is to be injected, we think it may help enhance the company's earnings in the long term. In addition, this deal may also reduce related-party transactions between the company and its controlling shareholder.
We think the injection of power assets will help the company connect upstream and downstream segments of the coal value chain through its integrated coal-electricity model, which can help gradually smooth out cyclical fluctuations in coal prices and enhance earnings stability.
We suggest keeping an eye on the progress of asset transfer and asset price. The Asset Transfer Agreement is an agreement of intent, and the specific time and process of the transfer as well as the price of the target assets have not been mentioned. Given the large assets of Shaanxi Coal Power Group, we suggest keeping an eye on the progress of the asset transfer and valuation.
Financials and valuation
We keep our 2024 and 2025 earnings forecasts unchanged. The company's shares are trading at 10.3x 2024e and 9.8x 2025e P/E. We maintain our OUTPERFORM rating and target price at Rmb27.00. Our TP implies 12.2x 2024e and 11.6x 2025e P/E, offering 18% upside.
Risks
Disappointing demand recovery and/or project progress; higher-than- expected prices for acquired assets.
