The company's recent situation
Recently, Longyuan Electric Power successively issued the “Notice Concerning the Proposed Transfer of Subsidiaries' Shares” and the “Notice Concerning the Controlling Shareholder's Injecting Assets into the Company”, announcing: 1) It plans to transfer 27% of Jiangyin Sulong's shares at the Beijing Property Exchange at a price of no less than 1.32 billion yuan. After the transaction is completed, the company and its wholly-owned subsidiary will no longer hold Jiangyin Sulong's shares. The company's installed capacity of thermal power and photovoltaics was reduced by 1,215 MW and 25.8 MW respectively. Based on the transfer price, the net profit will increase by 297 million yuan. The group has about 400 subsidiaries 10,000 kilowatts of new energy installed.
reviews
Fulfill the return A promise, accelerate the divestment of thermal power, and inject green power assets with the Group's support. At the end of 2023, Longyuan Electric Power had a total installed capacity of 1.875 million kilowatts, including Jiangyin Sulong 1,215,000 kilowatts (holding 27% shares) and Nantong Tiansheng Port 660,000 kilowatts (holding 31.94% of shares). The former was the target of this transfer. According to the announcement, the company plans to transfer at a price of not less than 1.32 billion yuan on the Beijing Property Exchange in the form of a public listing. Based on the project's 2023 net profit of 485 million yuan and net assets of 3.376 billion yuan, we estimate that the transfer price corresponds to 1.5xP/B and 10.1xP/E in 2023, which is basically consistent with the current leading thermal power secondary market valuation. We expect that with the divestment of the company's thermal power assets, the company's cleanliness may be further enhanced, which is conducive to attracting ESG capital allocation.
According to the “Avoiding Competition Agreement” between China Energy Group and Longyuan Electric Power, various methods can be used to inject surviving new energy assets within 3 years of A-share listing. Currently, the proportion of scenery within the 4 million kilowatt installed capacity is unclear, but we believe it will help push the company's new energy installed capacity by 13.5% compared to the end of 2023. After thorough evaluation, it can potentially be injected into assets or help the company further consolidate its leading position in clean energy in the industry.
Electricity reform and energy saving and carbon reduction policies will be deepened in 2024. We are optimistic that the policy will continue to firmly support green development and boost green consumption and environmental value. Since this year, electricity reform policies have been accelerated, spot markets have been built and expanded, market-based electricity pricing mechanisms and price discovery functions have been improved, and both sides of the power generation side and electricity consumption side have been guided to cut peaks and fill valleys together, providing conditions for a high proportion of new energy consumption. Recently, the “2024-25 Energy Conservation and Carbon Reduction Action Plan” and the “Notice on New Energy Consumption and High-Quality Development” have been issued one after another. The State Council issued energy consumption and carbon emission reduction targets per unit of GDP, which shows the determination to implement policies, guide and restrain energy-intensive enterprises to reduce emissions, refine implementation paths for sub-industries, and strengthen implementation efforts. Among them, increasing non-fossil energy consumption or a more effective and direct carbon reduction method in the short term is expected to open up space for green electricity demand and realize environmental value. We expect joint policy support to gradually shift China's renewable energy development mechanism from a supply-side guarantee policy system focusing on price, subsidies, and target management to a consumer-led policy system centered on “consumption responsibility weight+green certification”.
Profit forecasting and valuation
We keep our profit forecasts, valuations and ratings unchanged.
risks
The rebound in the electricity limit rate exceeded expectations, and the performance of trading electricity prices fell short of expectations.