A leading clean energy company in North China, wind power+natural gas two-wheel drive. The actual controller is the Hebei Provincial State-owned Assets Administration Commission. In 2010, Hebei Construction, a 100% holding company of the Hebei Provincial State-owned Assets Administration Commission, co-sponsored the establishment of Xintian Green Energy and was listed on the Hong Kong Stock Exchange in the same year. After years of development, the company formed a main profit pattern with wind power as the main focus and natural gas as supplement: in 2023, it achieved revenue of 20.282 billion yuan and net profit of 2.207 billion yuan. The wind power and photovoltaic division contributed about 2/3 of net profit to mother, and the natural gas division contributed about 26% to net profit to mother.

Wind Power and Photovoltaic Division: 1) With high-quality wind resources in North China, the company's return on net wind power assets is relatively stable and superior to its peers. By the end of 2023, the company's wind power holding had installed 6293.75 MW and PV holding installed capacity of 126.12 MW. The division's profit mainly came from the wind power business.

The company's wind power accounts for 79% of the installed capacity in North China. The wind resources are of high quality, and the average number of hours used has long been superior to the national average. Supported by high-quality wind resources+better electricity prices, the return on net assets of the company's wind power and photovoltaic divisions in 2023 was around 12%, which is at the leading level of peers. 2) With sufficient resources at hand, the implementation of the Hebei North Wind Plan has further opened up room for growth. By the end of 2023, the company's wind power under construction+ approved unstarted units was about 56.1% of the installed capacity of Wind Power Holdings, laying a solid foundation for subsequent asset scale expansion. In early 2024, the Hebei North Wind Plan was implemented, and it is planned to build 1.8 million kilowatts of wind power projects under provincial administration and 5.5 million kilowatts of wind power projects under national administration. As a leading clean energy enterprise in Hebei Province, the company is expected to fully benefit and can be expected to grow in the future.

Natural gas division: Combines midstream pipeline transportation and downstream urban fuel distribution business. The Tangshan LNG project further improved the industrial chain layout, and the increase in LNG led to a rapid rise in gas sales scale. In recent years, with mergers and acquisitions of downstream urban combustion projects, the company's share of retail gas has gradually increased, leading to an increase in the overall gas purchase and sales price gap. The first phase of the Tangshan LNG project and the outbound pipeline were completed and put into operation in 2023. LNG is currently the main source of incremental gas sales. 2024H1 sells 3.017 billion cubic meters of gas, of which LNG sales volume is 0.691 billion cubic meters, which is expected to increase by more than 25% in 2024. With international gas prices returning to a reasonable range, the Tangshan LNG project will also help improve the company's gas source cost control level. Furthermore, the smooth price work in Hebei was fully implemented in 2023, and the company's gross retail sales gap is expected to pick up.

The quality of assets is excellent, and the ability to generate cash is worth focusing on. In the face of industry opportunities, cash flow can effectively support capital expenditure requirements and is expected to drive a steady increase in profit scale and asset scale. In 2023, the company's total depreciation and amortization expenses were 2.379 billion yuan, and depreciation/net profit reached 100.2%; operating cash flow was 4.852 billion yuan, 1.77 times net profit. It can be seen that net profit does not reflect actual cash generation capacity. The fundamental reason is that wind power operating costs are mainly non-payable costs such as depreciation and amortization. If net profit plus depreciation and amortization is used as an indicator of net cash flow generation capacity, the 2023 operating data corresponds to a net cash generating capacity of about 4.75 billion yuan, which can cover 77% of the 2023 capital expenditure (6.147 billion yuan). As wind power and natural gas projects under construction are gradually put into operation, the company's profit scale and asset scale are expected to increase steadily.

Based on the current situation, against the backdrop of a significant recovery in Hong Kong stock liquidity and a return to market risk appetite, the overall valuation level of the Green Power sector is expected to rise; as the company has superior asset quality within the sector, the valuation level is expected to recover quickly.

Profit forecast and valuation: Net profit to mother for 2024-2026 is estimated to be 2.38, 3.07, and 3.41 billion yuan, respectively, with year-on-year increases of 7.8%, 29.0%, and 11.1%, respectively. 1) The net profit of the wind power and photovoltaic division is expected to be 1.7 billion yuan in 2024. Hong Kong stock Longyuan Electric Power, Datang New Energy, CGN New Energy, etc. are selected as comparable companies. Considering improved liquidity and marginal improvements in industry policy, the sector's valuation level will rise. Referring to historical valuation levels, the wind power and PV segment will be given 10 times PE, taking the RMB/HKD exchange rate of 1.1, with a corresponding value of HK$18.7 billion; 2) Expected net profit of the natural gas division in 2024 is 0.61 billion yuan. As comparable companies, Kunlun Energy, Hong Kong China Smart Energy, and Xinao Energy also refer to historical valuation levels, take the RMB/HKD exchange rate of 1.1, and give the natural gas segment 13 times PE, corresponding to a value of HK$8.7 billion. Under conservative considerations, without valuing other businesses, the company's intrinsic value is approximately HK$27.4 billion, and there is still room for an increase of about 49% from the current market value. First coverage, giving a “buy” rating.

Risk warning: wind power utilization hours fall short of expectations, risk of electricity price fluctuations, LNG project operation falling short of expectations, risk of natural gas price fluctuations