Investment logic:
In the context of new energy entering the market, wind power assets in regions with tight supply and demand predominate.
Considering the potential expansion of 2 million tons of electrolytic aluminum production in Yunnan, based on an operating rate of 75%/100%, this will drive electricity consumption growth in Yunnan by 9%/18.3%, respectively. According to monthly market transaction data for '23, the dry, flat, and positive average has achieved a top rise of nearly 10%, reflecting the strained relationship between supply and demand.
The high output of wind power is concentrated in winter and spring. Yunnan wind power accounts for 61%/15%/24% of the number of hours used during the dry, flat, and high seasons, respectively. Market transaction prices in the dry season are close to double during the high water season, and concerns about electricity restrictions are avoided.
In-vivo development+group injection, dual path development of new energy.
Wind power projects with a stock of 0.37 million kilowatts account for superior resources. The average number of hours used in 19-23 years was 1.9%/8.4% higher than the average of Longyuan Yunnan Power Station and the provincial average, respectively.
In-house wind power development has driven 1Q24's net profit from withholding a year-on-year increase of 108.4%, and 1H24 predicts net profit to mother of 5.5 to 0.58 billion yuan. There is a high degree of certainty that wind power installations will grow in 24/25. The total installed capacity of the company's scenery reached 1.581 million kilowatts at the end of '23, an increase of 204% over the end of '22. It is expected that the first and second phase of the Admiralty Wind Farm will be put into operation with a total of 0.42 million kilowatts, and the total expansion project of 0.67 million kilowatts will continue to bring about a 26.6%/34.1% year-on-year increase in installed capacity at the end of 24/25.
Actual investment in wind power projects is expected to decline. IRR is highly sensitive to unit investment. If the actual investment per kilowatt falls to 4,000 yuan/KW, it corresponds to 13% to 14.5% of the total IRR investment.
A 5 percent increase in electricity prices per kWh and a 50 hour increase in annual utilization hours will both lead to an increase of about 0.4 pct in total investment IRR.
The Group's PV assets are expected to be injected. The company currently manages 120MW of PV and 939.5MW of Rongyao New Energy's PV under Green Energy, a subsidiary of the Group. Priority injection is given after meeting the conditions.
The salt and nitrogen business is stable, and the natural gas business is expected to recover. In '23, the salt sector contributed about 0.17 billion yuan (wholly-owned subsidiary) to the mother's profit, and the performance has been stable for the past two years. The natural gas sector dragged down net profit of about 0.07 billion yuan in 2008. Demand lagged behind pipeline construction, putting pressure on short-term performance. The actual utilization rate was less than 10%, and there was plenty of room for improvement.
Profit forecasts, valuations, and ratings
Without considering the Group's PV asset injection, we expect the company to achieve net profit of 0.74/0.86/1.01 billion yuan in 24-26 years, respectively, giving the company 15 times PE in 25 years, with a target price of 13.96 yuan. First coverage, giving a “buy” rating.
Risk warning
Risk of electricity demand falling short of expectations; risk of changes in electricity price policy in Yunnan Province; risk of market-based electricity prices falling short of expectations during the Fengshui period; risk that the Group's photovoltaic asset injection falls short of expectations; risk that the salt industry and natural gas business fall short of expectations, etc.