\u3000\u3 Jointo Energy Investment Co.Ltd.Hebei(000600) 011 Huaneng Power International Inc(600011) )
Key investment points
Company profile: China’s largest thermal power listing platform still insists on large dividends during the period of performance pressure. The company is the largest power listing platform under Huaneng Group and one of the largest listed power generation companies in China. By the end of 2020, the company has 113.36gw of controllable power generation installed capacity and 98.95gw of equity power generation installed capacity. Domestic power plants are widely distributed in 26 provinces, autonomous regions and municipalities directly under the central government. In terms of performance, the company’s revenue is relatively stable and the net profit fluctuates greatly. The core is that the fuel cost has a cyclical attribute. Thanks to abundant cash flow, the company still insists on large dividends during the period of performance pressure. The dividends accounted for 109.1%, 125.7% and 61.9% of the net profit attributable to the parent company from 2018 to 2020 respectively.
Green power business: high industry prosperity + good competition pattern + strong profitability, with a target market value of 180 billion yuan.
1) industry level: high prosperity + good competition pattern + strong profitability. Green power operation has a clear growth stage in the next 5-10 years. We think peg valuation should be adopted. 2) At the company level, combined with the group’s “14th five year plan” installed capacity objectives and on-hand reserve projects, we expect the compound growth rate of the company’s green power installed capacity to be 40% from 2022 to 2024; Considering that there are some sea breeze projects in the company’s new installed capacity, and their profitability is stronger than that of land breeze projects, the compound growth rate of the company’s net profit attributable to the parent company should be higher than that of the installed capacity. Based on the calculation of 0.75 times peg and 30 times PE, the contribution of the new energy installed business attributable to the parent company’s net profit in 2022 is about 6 billion yuan, and the corresponding target market value is 180 billion yuan.
Thermal power business: in the long run, it will eventually be converted into green power assets through depreciation, and the current value is significantly underestimated.
More than 50% of the company’s coal-fired units are large units with more than Shanghai Pudong Development Bank Co.Ltd(600000) kW. 25 home appliance plants are located in economically developed areas along the coast and the river. They are high-quality thermal power generation assets with high unit utilization and strongest profitability. From 2017 to 2021, affected by the high price of thermal coal and the provision of large asset impairment, the company’s thermal power business continued to drag down the performance. 1) In the short term, the market-oriented transaction price rises + the national development and Reform Commission strictly controls the coal price. We judge that the price of thermal coal is likely to fluctuate at a high level. The company’s thermal power business has passed the most difficult moment and is expected to achieve breakeven or micro profit. 2) In the medium term, the administrative measures for electric power auxiliary services have been issued. According to the principle of “who provides, who profits; who benefits, who bears”, the profitability of auxiliary services of thermal power units is expected to be improved. 3) In the long run, the company will invest more and more in green power assets and less in traditional thermal power assets, so the existing thermal power assets will eventually be converted into green power assets in the form of depreciation. As of March 18, 2022, the Pb of Huaneng Power International Inc(600011) (A shares) and Huaneng Power International Inc(600011) power (H shares) are 1.81 and 0.71 times respectively, while the Pb of Longyuan Power (A shares) and Longyuan Power (H shares) are 3.84 and 2.08 times respectively. Therefore, the value of the company’s existing thermal power assets is obviously underestimated.
Profit forecast and investment rating: we expect the company’s EPS from 2021 to 2023 to be -0.67, 0.43 and 0.55 yuan respectively, of which the corresponding PE from 22 to 23 years is 18 and 14 times. Considering that as the largest thermal power listing platform in China, the company still adheres to large dividends during the period of performance pressure; The green power business industry has high prosperity + good competition pattern + strong profitability, with a target market value of 180 billion yuan in 2022; In the long run, the thermal power business will eventually be converted into green power assets through depreciation, and the current value is significantly underestimated. Therefore, we cover it for the first time and give the company a “buy” rating.
Risk tip: the macroeconomic downturn weakens the demand for end industrial power, the hours of wind power photovoltaic power generation do not meet expectations, and the terminal sales price continues to decline under the influence of policies
