Introduction to this report:

The new energy transition is expected to drive the trend increase in the company's ROE trend, and the company's stock PB valuation is expected to begin a recovery journey along with ROE.

Key points of investment:

The first coverage gave an “increase in holdings” rating, with a target price of 8.00 yuan. Considering factors such as the progress of electricity installation and commissioning, fluctuations in coal prices and gas prices, we expect the company's EPS to be 0.38/0.48/0.63 yuan from 2022 to 2024. Combining two valuation methods, PE and PB, gave the company a target price of 8.00 yuan, covered it for the first time, and gave it an “increase in holdings” rating.

The new energy transition is expected to drive the trend increase in the company's ROE. The market believes that the company's ROE has been weaker than its peers in recent years, and that PB valuation will remain at a lower level than ROE for a long time. However, we believe that the company's “14th Five-Year Plan” new energy transformation will significantly improve the overall profitability of assets, and subsequent PB valuations are expected to usher in a trend increase along with ROE.

Distinctive information and logic: 1) The company's “14th Five-Year Plan” strategic plan focuses on developing new energy sources. It has signed new energy development framework agreements with governments in many parts of the country at an accelerated pace. Reserve projects for new energy projects exceed 8 GW. Under the upstream cost reduction trend, we expect the company's new energy installations to grow rapidly in '23. 2) The profitability of the company's incremental new energy projects is significantly higher than its stock of traditional business, and it has the potential to increase financial leverage (the balance ratio is far lower than that of new energy and thermal power conversion new energy companies during the same period). After the accelerated implementation of the company's new energy projects, its ROE level will usher in a trend increase; 3) Reviewing the company's historical situation, its PB is highly correlated with ROE over the past 20 years. As of March 10, 23, the company's PB is expected to drive the stock PB valuation center upward.

Catalysts: The installation of new energy sources to the grid is accelerated, and the implementation of integrated energy projects is accelerated.

Risk warning: Electricity demand falls short of expectations, new energy installations fall short of expectations, coal prices exceed expectations, upstream gas prices of natural gas exceed expectations, etc.