Key points of investment

The Securities Regulatory Commission issued the “Six Mergers and Acquisitions Rules”, which are beneficial to speeding up asset restructuring of central power enterprises:

On September 24, the China Securities Regulatory Commission issued “Opinions on Deepening the M&A and Restructuring Market Reform of Listed Companies”, which mainly includes six aspects, referred to as the “Six Rules for M&A”, to further strengthen the M&A and restructuring resource allocation function, give full play to the role of the capital market as the main channel in mergers, acquisitions and restructuring, adapt to the needs and characteristics of new quality productivity, and support listed companies to inject high-quality assets and enhance investment value.

The Securities Regulatory Commission will support listed companies to issue payment instruments such as shares and convertible bonds in installments, payment of transaction consideration in installments, and installment supporting financing according to transaction arrangements to improve transaction flexibility and capital use efficiency. At the same time, a simple restructuring review procedure has been established to greatly simplify the review process, shorten the review time frame, and improve the efficiency of restructuring for eligible listed companies. It is expected that the introduction of the “Six Rules for Mergers and Acquisitions” will speed up the adoption of strategic restructuring and professional integration by central enterprise power groups to further focus on their main business and optimize the layout of state-owned capital. As the top of the five major power generation groups, the National Energy Investment Group is expected to respond positively to mergers, acquisitions and restructuring policies, inject clean energy assets into Longyuan Electric Power in batches in accordance with previous promises and plans, and build a new energy flagship listing platform.

Green electricity's bearish factors have been fully responded to, and market recovery is beneficial to upward valuation repair:

In the early stages, the market generally had pessimistic expectations about future electricity price trends. In particular, due to poor wind resources and rising electricity restrictions this year, valuations in the green electricity sector continued to fall under pressure, far below 1 times the net market rate level. In the context of recent interest rate cuts at home and abroad, power operators, as an interest-sensitive sector with heavy asset investment, are expected to benefit from declining interest rates leading to an increase in the return on project investment and a decrease in the company's overall financial costs, helping power operators' performance grow steadily. At present, in a situation where market capital, sentiment, and confidence are fully recovering, the valuation of the green power sector has begun to recover significantly. In particular, state-owned asset companies such as Longyuan Electric Power A+H are expected to take the lead in recovering, and there is plenty of room for improvement.

Maintaining a buy rating, target price of HK$10:

We have updated the company's target price of HK$10, which is equivalent to 12.5 times and 10.4 times PE in 2024 and 2025. The target price has room for a 46% increase compared to the current price, and the purchase rating is maintained.