Falling fuel costs have contributed to a significant increase in profits. In 2023, the company achieved revenue of HK$103.334 billion, which is basically the same as the previous year. Among them, thermal power and renewable energy achieved revenue of HK$800.53/23.281 billion, or -2.3%/+9.1%, respectively. Segment profit was HK$54.72/9.96 billion, respectively, and segment profit margin was 6.83%/42.8%. Profit attributable to company owners increased 56.2% year over year to HK$11.03 billion. The renewable energy business contributed HK$9.726 billion (2022: HK$8.645 billion), and the thermal power business contributed HK$3.611 billion (2022: loss of HK$2,582 billion). The sharp increase in net profit was mainly due to the reduction in fuel costs for thermal power. In '23, the company's fuel costs fell 15.2% from HK$64.283 billion in the previous year to HK$54.509 billion. We expect that in '24, the company will benefit from changes in the coal supply and demand pattern to achieve further reduction in fuel costs and a continuous increase in profitability.
The renewable energy business performed well. (1) With the continuous increase in the proportion of the company's renewable energy installed capacity, the company's renewable energy feed-in capacity is growing rapidly. The sales volume of the company's wind power and photovoltaic power plants increased by 12.4% and 111.8% respectively over the same period last year. Renewable energy achieved revenue of HK$23.28 billion, +9.12% year over year, and core profit contributed HK$9.726 billion, +12.52% year over year. Renewable energy's core profit accounted for 72.9%, and continued to be the main contributor to the company's profit. (2) As of the end of '23, the company's operating installed capacity was 77.32 GW, and the installed operating equity capacity was 59.76 GW. Among them, the installed capacity of wind power and photovoltaic equity increased by 3.11 GW and 2.23 GW to 18.62 and 3.44 GW respectively. The total installed capacity of renewable energy operating rights such as wind power, photovoltaics and hydropower reached 22.6 GW. The installed capacity increased 5.5 percentage points to 37.8% compared to the end of the previous year. The company plans to accelerate the construction of wind power and photovoltaic projects. The target for installing additional wind power and photovoltaics is expected to be 10 GW in 24.
The annual dividend payout ratio was 62%. The company plans to pay a final interest of HK$0.587. An interim dividend of HK$0.328 was already paid in November '23, a dividend of HK$0.915 per share for the year 23, and a dividend of HK$0.5 per share for the 20th anniversary of the listing. The total dividend for 2023 is HK$1.415 per share, with a payout rate of 62% for the full year.
Profit forecast and valuation: We expect the company to achieve operating income of HK$1098.6/1178.7/HK$124.57 billion and net profit to mother of HK$146.8/168.8/HK$18.13 billion in 24-26, corresponding earnings per share of HK$3.05/3.44, respectively. The price-earnings ratios corresponding to the current stock price are 6.37/ 5.54/ 5.16 X, respectively. We believe that there is still room for improvement in the fundamentals of the company's thermal power business. The proposed spin-off of the new energy business A share listing may help increase the valuation level. We raised the company's target to HK$26 to maintain a “buy” investment rating, corresponding to PE 8.5 X in 2024.
Risk warning: The increase in feed-in electricity, electricity prices, and new energy installations fell short of expectations; the increase in coal prices exceeded expectations.