Core views:
Performance has improved significantly year over year, and ROE has reached 10%. The company released its 2023 annual report, achieving revenue of 96 billion yuan (+19.7% year-on-year), net profit of 6.520 billion yuan (loss of 1,827 billion yuan in the same period last year), and Q1-4 of 10.11 billion yuan, 17.68, 31.84, and 557 million yuan, respectively. Significant improvements in performance were mainly due to (1) improvements in coal costs, and gross margin of electricity increased by 16 pcts; (2) investment income reached 4.6 billion yuan (+39.9% year-on-year). Operating cash flow in 2023 reached 11.5 billion yuan (+5022% year over year), weighted ROE reached 10%, and net assets returned to mother increased 10.1% from the end of 2022; in addition, depreciation of 600 million yuan was calculated (mainly 300 million yuan from acquisitions). 2024Q1 achieved revenue of 20 billion yuan (+13.5% YoY) and net profit to mother of 1,815 billion yuan (+79.6% YoY).
Two GW of coal and electricity were added in Yueqing, and it is optimistic that high-ROE+ installed production will continue to increase net assets. In 2023, the feed-in capacity was 154.5 billion kilowatt-hours (+7.5% year over year), and the 2024Q1 was 36.4 billion kilowatt-hours (+18.0% year over year); it mainly put into operation 2 GW of coal power in June 2023, and the installed capacity increased to 35 GW. By the end of 2023, the company was constructing 6 GW of coal power. Considering that the coal power project under construction was fully put into operation and the installed capacity of thermal power exceeded 40 GW, the current ROE maintenance and net assets returned to the mother could reach 82.8 billion yuan.
Shareholding in nuclear power stabilizes earnings, and we look forward to increased dividends. The company's investment income increased significantly over a long period of time. In 2023, long-term equity investment reached 4.2 billion yuan (+45% year over year), counting nuclear power 1.7 billion yuan (+25% year over year) and thermal power 2.1 billion yuan (+74% year over year). Nuclear power approval has accelerated in recent years, and according to statistics, there is still room for double growth in reserve equity installed by participating companies, and we are optimistic about subsequent investment income growth. The proposed cash dividend for 2023 is 3.352 billion yuan, accounting for 51.42% of net profit attributable to mother; the dividend rate corresponding to the closing price at the end of 2023 is 5.42%, which corresponds to the dividend rate of 4.04% for the latest closing price.
Profit forecasting and investment advice. The company's net profit from 2024 to 2026 is estimated to be 87.81, 94.16, and 10.056 billion yuan, respectively, and the PE corresponding to the latest closing price is 9.51, 8.87, and 8.31 times, respectively. Coastal thermal power plant with high ROE expectations for dividends and net asset growth. Referring to the peer valuation level, taking into account the company's accelerated utility process, the company was given a PB valuation of 1.4 times 2024, corresponding to a reasonable value of 7.53 yuan/share, maintaining a “buy” rating.
Risk warning. Fluctuations in coal prices; decline in utilization hours; project construction progress falls short of expectations, etc.