Jiayin International has issued a research report stating that it rates Longyuan Power (00916) as a 'buy' due to recent trading still awaiting implementation, with a target price of HKD 9.03. The bank believes that the company's restart of the acquisition of new energy assets from its parent company has significant meaning. Additionally, since the new leadership team took office, two important restructuring plans have been launched, and the execution strength is worthy of investors' expectations. In the short term, the bank believes it will support a small valuation increase. The long-term valuation increase will depend on the company's visibility in further acquisition of parent company assets in the medium and long term.
Bocom International's main points are as follows:
The asset restructuring plan has strengthened the company's new energy operation.
The company recently announced two asset restructuring plans. The more noteworthy one is that the parent company, State Grid Corporation of China, intends to inject some new energy assets that meet the conditions into the company, with an expected scale of about 4 GW. This is consistent with the bank's previous report, which expected the company to 'partially fulfill' its acquisition commitments. At the same time, last week, the company also announced a potential transaction that will sell a 27% stake in Jiangyin Sulong for no less than 1.319 billion RMB, including 1.2 GW of thermal power equity (consolidated project). After the transaction is completed, the bank estimates that the company will have only 0.6 GW of merged thermal power installed. The bank believes that the purpose of these two transactions is to reduce competition with the parent company and further strengthen the company's position as the main platform for new energy business within the group.
Injecting new energy projects in batches is more flexible and should reduce financial pressure.
Regarding the injection of new energy assets from the parent company, the company mentioned that the potential projects still need to be investigated and audited before being injected. Although the company did not provide a timetable, since the premise is that the injection will be done in batches, the bank estimates that the first batch of projects is likely to begin injection work within this year. At present, the bank is more inclined to believe that the company will use internal resources and bank loans to pay the acquisition amount in installments, in order to reduce the company's financial pressure. Even if the company needs to finance through equity, the scale should be relatively small.
The direction of integrating the rest of the parent company's new energy assets is clear, but the update of the timetable is pending.
The bank understands that investors still have concerns about the gap between the current acquisition size of 4 GW and the originally planned 20 GW, but the announcement stated that 'State Grid Corporation of China will continue to fulfill its commitments and continue to reduce and resolve inter-industry competition,' which can be regarded as the direction of the company's further acquisition of new energy projects from the parent company remaining unchanged. As for whether there is a long-term timetable, the bank believes that in the earnings conference in August, the management may give a more detailed explanation.