Industry: Approved construction starts at an accelerated pace, and there is plenty of room to increase the share of power generation

At present, the pace of approval of nuclear power in China is speeding up. In 2022 to 2023, 10 units were respectively approved, and 11 units were approved by the National Assembly in 2024. The units approved in the second half of 2022 and some units approved in 2023 are expected to start construction within 2024, and it is predicted that the 2024 nuclear power plant start-up unit is expected to approach 12 GW. Nuclear power generation accounts for only 4.7% of total power generation in 2023, and there is great room for improvement. According to the China Nuclear Energy Industry Association, nuclear power generation is expected to account for 10% of total power generation by 2035.

Company development: the installed scale of nuclear power and power generation capacity continue to grow

As of 2024H1, the company has 23.75 GW of installed nuclear power plants in operation, and 17.56 GW of nuclear power units approved and under construction, +16% compared to the same period last year. In 2023, the company's nuclear power generation capacity reached 186.48 billion kilowatt-hours, +0.7% year-on-year, accounting for 43% of the country's total nuclear power generation. As the company's new approvals and the units under construction continue to be put into use, the company's power generation capacity is expected to continue to rise. In 2023, the company's market-based electricity transactions accounted for 44.6%, and the share continued to rise. The share of power generation and market-based electricity transactions continues to rise, and the stabilization of superimposed electricity prices is expected to continue to improve the company's profitability.

Highlights: Stable cash flow and continuous improvement in profitability

The company is the leading nuclear power operator. In 2023, the company achieved net profit of 10.62 billion yuan, an increase of 17.9% over the previous year; the realized gross sales margin/net sales margin was 44.62%/25.90%, respectively, an increase of 2.77 pct/7.65 pct compared to 2019. In 2023, the company's revenue ratio reached 1.10 and the net cash ratio reached 2.22, achieving simultaneous growth in cash and business. As the company's revenue continues to grow and has a stable cash flow, the company's financial soundness is highly guaranteed. We expect that with the acceleration of approved and ongoing projects, the company's cash flow is expected to continue to be maintained and profit quality is expected to continue to improve under the prospect of a continuous increase in the company's feed-in capacity.

Profit forecasting and investment advice

In view of the company's 1) steady growth in nuclear power installed capacity and continuous increase in power generation capacity; 2) the company's share of market-based electricity transactions continues to rise, and superimposed electricity prices tend to stabilize; 3) the company has stable cash flow and continuous improvement in profit quality. We expect the company's revenue for 2024-2026 to be 79.494/87.786/94.766 billion yuan, respectively, up 6.05%/10.43%/7.95% year-on-year; net profit to mother was 11.131/12.161/13.219 billion yuan, respectively. The increase was 4.77%/9.26%/8.69%, corresponding PE was 18/16/15 times, EPS was 0.59/0.64/0.70 yuan/share, respectively, and a three-year CAGR of 7.56%, giving it a “buy” rating.

Risk warning: Nuclear power project approval falls short of expectations; construction progress of projects under construction falls short of expectations; risk of nuclear power safety accidents.