The flagship listing platform of the Three Gorges Group, “the strategic implementer of the Three Gorges Group's new energy business”. The company is the flagship listing platform of the Three Gorges Group. As of March 2024, the Three Gorges Group directly held 28.11% of the shares and indirectly held 20.96% of the shares through the Yangtze River Three Gorges Investment Management Co., Ltd. In addition to Three Gorges Energy, the Three Gorges Group's listed companies also include Changjiang Electric Power, Hubei Energy, and Three Gorges Water Resources (comprehensive energy business). The company's business is positioned as “the strategic implementer of the Three Gorges Group's new energy business”.
The installed scale of new energy surpasses that of Longyuan Electric Power, and vigorous development of sea breeze is a characteristic of the company. In terms of volume, the company's new energy operating scale has surpassed Longyuan Electric Power, ranking first among A+H shares. By the end of December 2023, the company's cumulative installed capacity of wind power reached 19.42 million kilowatts, accounting for 4.4% of the national market share, of which the cumulative installed capacity of offshore wind power was 5.49 million kilowatts, accounting for 14.73% of the national market share, making it the largest listed company in Yunhaifeng in the country; the installed photovoltaic capacity reached 1.82 million kilowatts, accounting for 3.25% of the national market share, and the absolute volume of photovoltaics also ranked first in A+H shares.
Accounts receivable are still the core factor limiting the company's valuation expansion, and it is expected that repayment of stock subsidized projects will improve. The company and the green power sector as a whole have not performed well since 2022, and delays in the recovery of subsidy payments are still a major factor. Affected by subsidy arrears, the size of the company's existing accounts receivable (including notes receivable, same below) has surged in recent years, reaching 36.72 billion yuan as of the end of December 2023.
Judging from the comparison between the company's net profit and the value added of accounts receivable over the years, the two are almost at the same level, and market concerns about the pace of recovery of subsidy payments continue to suppress the company's valuation. However, from a valuation perspective, we have analyzed that the current market's response to the delayed recovery of subsidy payments is quite adequate. We recommend paying close attention to the recovery of subsidy funds. Relevant policy advantages are expected to become a catalyst for the company's trending market.
In addition to accounts receivable, we analyzed that another important factor limiting Green Power's stock price is market concerns about the yield of new projects. Behind this, the disadvantages of unstable new energy sources were revealed too soon, and the pressure on power system consumption exceeded expectations. In terms of institution-building, a new round of top-level documents on electricity reform was held in July 2023 to establish a multi-level unified electricity market system adapted to the development of new energy sources. However, the current spot market construction progress is ahead of other mechanisms. The construction of the carbon market is seriously lagging behind, the environmental value of new energy sources is difficult to reflect, and insufficient consumption is putting downward pressure on electricity prices in the spot market. We analyze that the further development of the dual carbon strategy needs to be protected by relevant supporting mechanisms, especially the carbon market, green power trading, and related carbon-electricity coordination mechanisms. Rationalizing the mechanism will become the underlying driving force for trending opportunities in the green power sector.
Overall, at this point, yield is objectively under pressure. Let's analyze the three indicators to observe the new energy industry in the next two years:
Added installed capacity growth, progress in the carbon market, and mitigation of non-technical costs. The biggest underpinning of the new energy industry is the hard restraint of the dual carbon strategy. Currently, the country's attitude is still firm, and long-term demand is worth looking forward to. We believe that with digestion over time, investment in green power will eventually return to rationality. Under multiple benefits such as rectifying chaos, rising demand, and lower prices upstream in the industrial chain, the return on the operating side is expected to be close to that of stable utilities throughout the entire industry chain. Relevant policy advantages are expected to be a catalyst for the company's trending market.
Profit forecast and valuation: Based on the company's operating conditions and installed capacity plan, we expect the company's net profit to be 75.68, 80.43 and 8.776 billion yuan respectively for 2024-2026, corresponding to the current stock price 18, 17, and 15 times PE. Longyuan Electric Power, Zhongmin Energy, Jiaze New Energy, and Jingke Technology were selected as comparable companies. The company had obvious advantages in scale, covered for the first time, and was given an “increase in weight” rating.
Risk warning: the risk of electricity prices after the launch of the spot market; the abandonment rate exceeds expectations; the allocation of auxiliary services exceeds expectations.