Incidents:
The company released its semi-annual report for 2023. 23H1 achieved total operating income of 29.915 billion yuan (+7.19%), net profit of 2,002 billion yuan (+12.85%), net profit of non-attributable income of 1,819 billion yuan, +26.50% year-on-year.
Among them, Q2 achieved total operating income of 15.198 billion yuan, +10.12% year-on-year, and net profit of 983 million yuan, +15.92% year-on-year. Performance fell slightly short of expectations, mainly due to increased credit impairment.
Key points of investment:
Overall gross margin improved year on year, expense ratios continued to decline, and short-term accounts receivable increased sharply and credit impairment increased. 23H1's overall gross margin reached 17.4% (+1.0pct), the first year-on-year increase since 2019. The sales/management/R&D/financial expense ratio was 2.30%/4.49%/3.58%/-0.26%, respectively, -0.23pct/-0.32pct/+0.19pct/-0.06pct, respectively, and the cost rate during the sales period was 10.30% (year-on-year -0.46pct), and the overall business situation of the company continued to improve. However, due to the increase in sales revenue, the company's accounts receivable reached 13.44 billion yuan (up 3.3 billion yuan from the previous year), resulting in a credit impairment loss of 324 million yuan (an increase of 416 million yuan over the previous year) during the reporting period, which became the most important factor affecting performance. However, from a historical point of view, phased fluctuations in the company's credit impairment are a normal phenomenon.
Clean and efficient power generation equipment (coal power/gas engines/nuclear power): Revenue is growing steadily, gross margin fluctuates in stages, and orders have increased dramatically. Revenue: 23H1's clean and efficient power generation equipment achieved revenue of 9.972 billion yuan (+16.86%), of which 7.347 billion yuan (+18.52%) for coal power, 1,419 billion yuan (+14.04%) for gas engines, and 1,206 billion yuan for nuclear power (+10.62%), continued to rise steadily. Gross profit margin: 19.03% for coal power (-4.27pct) and 15.71% for nuclear power (-17.46pct) have all declined to varying degrees. Judging that the lower gross margin of coal power is related to the higher raw material prices last year. With the decline in raw material costs this year and the rise in prices brought about by strong demand for coal power equipment, gross margin is expected to rise rapidly.
Orders: New orders of 21 billion yuan for clean and efficient power generation equipment in the first half of the year increased sharply by 87.2% year-on-year, close to the full year level of last year (21.7 billion yuan), consistent with the large-scale approval and commencement of thermal power and nuclear power projects since the second half of last year. Traditional power supply construction is booming. Coupled with a fixed increase in the acquisition of minority shares in core subsidiaries, the company's profitability is expected to be further strengthened in the future.
Renewable energy equipment: Wind power revenue is under pressure in the short term, and gross profit margin of hydropower continues to rise. Revenue: 23H1 Renewable energy equipment achieved revenue of 6.927 billion yuan, -14.99% year-on-year. Among them, wind power revenue was 5.59 billion yuan (-18.86% year on year) and hydropower revenue was 1,067 billion yuan (-14.93% year on year). Both business revenue declined to varying degrees. Among them, the decline in wind power was related to the fact that Haifeng started construction this year less than expected. Gross profit margin: The gross profit margin for wind power declined by 10.30% (-1.53pct), and the gross profit margin for hydropower continued to improve at 19.91% (+4.49pct). The improvement in gross margin of hydropower is expected to be related to the increase in the share of pumped storage energy. Orders: Renewable energy equipment increased by 116 billion yuan (+8.0% YoY). As of the end of last year, China had 120 GW of pumped storage under construction. Equipment tenders for most of these projects had not yet begun. The competitive pattern for pumped storage equipment was good and gross margin was high. It is expected that as related projects advance, the company's hydropower orders are expected to increase rapidly and become an important source of revenue and profit during the 15th Five-Year Plan period.
Revenue and gross margin from engineering and trade have increased markedly. In the first half of the year, engineering and trade achieved revenue of 6.099 billion yuan (+36.31% year on year), and gross profit margin improved sharply by 17.29% (+6.48 pct. year on year). The growth rates of emerging growth industries and modern manufacturing services achieved revenue of 4.506 billion yuan (+1.87% year on year) and 2,411 billion yuan (+3.51% year on year) respectively, and gross margins of 15.56% (+1.77 pct) and 53.41% (+5.40 pct) respectively improved. Currently, consumption of new energy sources is under pressure. Driven by electricity reform, flexibility transformation is expected to be carried out rapidly, enhancing the company's overall performance in the future.
Profit prediction and rating: Future demand for traditional power supplies is essentially driven by continuous load growth and power supply structural adjustments. The fundamentals of the industry are clearly superior to those before dual carbon, and the competitive landscape is stable. Maintaining the previous profit forecast, the company's net profit from 2023 to 2025 is expected to be 3.86 billion, 53.1 billion yuan, and 6.14 billion yuan respectively. The current stock price corresponds to PE 14, 10, and 9 times, respectively, maintaining the “buy” rating.
Risk warning: Investment in thermal power falls short of expectations, and approved commencement of pumped storage construction falls short of expectations