Key points of investment

Hydropower assets were restructured and returned to A, and Yuanda Environmental Protection became a direct hydropower integration platform of the State Power Investment Corporation and is a subsidiary of China Electric Power Holdings:

The company announced that China Power Investment Corporation intends to integrate its hydropower assets in China through the A-share listed company Yuanda Environmental Protection. China Electric Power will invest in Wuling Electric Power Co., Ltd. and China Power Investment Group Guangxi Changzhou Hydropower Development Co., Ltd. and other subsidiaries that specialize in hydropower business to subscribe for new shares issued by Yuanda Environmental Protection and become its direct controlling shareholder. Through this restructuring, China Electric Power has been further established as the China Power Investment Corporation's flagship comprehensive clean energy listing platform company, while Yuanda Environmental Protection has become a direct integration platform for China Power Investment's hydropower assets and is a subsidiary of China Electric Power Holdings. The specific transaction plan will be announced around October 18. It is expected that after the first step of the transaction, China Electric Power will hold a large share in Yuanda Environmental Protection. In the future, as more high-quality hydropower assets are injected, the shareholding ratio may decrease at a certain stage, but China Electric Power will maintain its control and joint position on the hydropower platform.

The return of hydropower assets to A is beneficial to improving the overall valuation level of China Power Investment Group and China Electric Power:

China Power Investment Group has 25.33 gigawatts of hydropower installations, of which 23.3 gigawatts are installed domestically. Currently, China Electric Power holds about 5.95 million kilowatts of hydropower assets in Guangxi and Hunan, accounting for only about 23.5% of the Group's total hydropower installations. Over the next 3 years, the China Power Investment Corporation plans to inject unlisted hydropower assets into the listed platform in stages. Among them, the largest single hydropower asset of the Yellow River is about 11GW, and the A-share hydropower platform may directly hold its controlling interest, while shares in other unlisted hydropower assets held by the group will not rule out the possibility of integration into China Electric Power. Overall, the Red Chip Control A capital structure built by this asset restructuring will open up effective channels for hydropower asset integration, make full use of the A-share market's high valuation of hydropower assets to achieve capital appreciation, give full play to the advantages of the H+A capital market, optimize the financial structure to control debt ratios, and achieve sustainable growth in the company's earnings per share and dividends.

Maintain the target price of HK$4.5 and give a buy rating:

We maintain the company's target price of HK$4.50, corresponding to 10 times and 8 times PE in 2024 and 2025. The target price has room to increase by +23% from the current price, giving it a buy rating.

Risk warning:

The rise in coal prices exceeded expectations

The commissioning of wind power and photovoltaic projects was delayed due to various factors

Increased power limit

Electricity price reduction