According to the Securities Times APP, Huayuan Securities released a research report stating that it maintains a "buy" rating for China Longyuan (00916), with forecasted annual net income attributable to shareholders for 2024-2026 unchanged at 5.951, 6.873, 7.315 billion yuan respectively. Longyuan is a benchmark company in the green energy sector with significant cni resource index advantages.

Event: The company announced that 1) it plans to acquire the equity of 8 new energy companies located in Shandong, Jiangxi, Gansu, and Guangxi regions under the controlling shareholder National Energy Group, with a total installed and under construction new energy capacity of 2.0329 million kilowatts, for a transaction price of 1.686 billion yuan. 2) The controlling shareholder issued a "Supplementary Commitment Letter (II)" to avoid competing with China Longyuan, extending the wind power business integration period for 3 years until January 24, 2028, to continue gradually injecting high-quality assets into China Longyuan.

The main points from Huayuan Securities are as follows:

The acquisition valuation is reasonable, and the quality of the target assets is superior.

Using June 30, 2024, as the evaluation date, the PB valuation of this acquisition is approximately 1.13 times, a reasonable price. In terms of the quality of the target assets, Junan New Energy, Hukou Wind Power, Gansu Wind Power, and Tengxian Energy Development are primarily operating wind and solar projects. Assuming that the net income for the second half of 2024 is consistent with the first half, the net asset return rate of these assets can reach around 10.5%, highlighting the superior asset quality. Xiahe New Energy, Minqin Wind Power, Wuwei New Energy, and Beishan New Energy are all four target companies with projects under construction in Gansu (0.1GW wind + 0.21GW solar). The local wind and solar resources in the area are abundant, providing some support for the asset return rate.

The further increase in the scale of new energy installations will drive an increase in profit scale.

As of 24H1, the company holds wind power installed capacity of 28.35GW and photovoltaic installed capacity of 7.66GW. After this transaction is completed, the wind power and photovoltaic installed capacity held will increase by 1.3GW and 0.72GW respectively compared to 24H1. From the perspective of performance enhancement, the planned acquisition achieved a net income of 0.141 billion yuan in the in-operation units in 24H1. Assuming that the net income of the in-operation units in the second half of the year remains the same as the first half, and considering the equity acquisition ratio, it is estimated that the full-year net income attributable to the parent company in 2024 will increase by approximately 0.146 billion yuan. Based on the industry's average installed capacity profitabililty calculations, it is expected that the other projects under construction (approximately 0.32GW wind power + 0.27GW photovoltaic) are expected to contribute a net income of around 0.04 billion yuan after they start production. The bank estimates that the total acquisition of assets this time can increase the full-year net income attributable to the parent by 3% compared to 2023.

Previously, the competition among peers only involved the injection of wind turbine assets, however, this injection also includes photovoltaic assets. The current controlling shareholder holds approximately 40GW of unlisted new energy assets, and future asset injections are still worth looking forward to.

The group promised when it returned to the A-share market in 2022 to address the overlapping issues of wind power and thermal power businesses within 3 years, and to inject its wind power assets into the company. By the end of 2023, the unlisted wind power and photovoltaic assets of the National Energy Group were approximately 23.47GW and 19.56GW respectively. After this injection is completed, the controlling shareholder still holds around 40GW of unlisted new energy assets, and future asset injections are still worth looking forward to.

With the introduction of the "Six Acquisition Measures" and the background of three years of reform for state-owned enterprises, as a leading target in the green power sector, the company's valuation still has room to rise.

In September, the China Securities Regulatory Commission issued the "Six Acquisition Measures" proposing further optimization of the restructuring review process, increasing the efficiency of restructuring reviews, and activating the M&A and restructuring market. As a pioneer and leading target in the domestic green power industry, the potential assets to be injected may not have been fully priced, and it is expected that there is still room for the valuation to rise.