Cinda Securities: Give SDIC Power a buy rating

Cinda Securities Co., Ltd. Zuo Qianming and Li Chunchi recently conducted research on SDIC Power and released a research report "Yalongjiang Electricity Price Increase & Thermal Power Cost Reduction Increment, 23 Years and 24Q1 Performance Increase", this report gives a buy rating to SDIC Power, and the current stock price is 15.9 yuan.

SDIC Power(600886)

Event: On the evening of April 29, the company released its 2023 annual report, in 2023, the company achieved operating income of 56.712 billion yuan, a year-on-year increase of 12.32%, a net profit attributable to the parent company of 6.705 billion yuan, a year-on-year increase of 64.31%, a net profit attributable to the parent company of 6.589 billion yuan, a year-on-year increase of 66.76%, a cash flow from operating activities of 21.268 billion yuan, a year-on-year decrease of 3.17%, and basic earnings per share of 0.875 yuan. Among them, in 2023Q4, the company achieved operating income of 14.16 billion yuan, a year-on-year increase of 15%, and net profit attributable to the parent company of 650 million yuan, turning losses into profits year-on-year.

On the same day, the company released the first quarter report of 2024, in 2024Q1, the company achieved operating income of 14.108 billion yuan, a year-on-year increase of 6.43%, and net profit attributable to the parent company of 2.035 billion yuan, a year-on-year increase of 26.14%.

The significant increase in net profit attributable to the parent company in 2023 and 2024Q1 was mainly due to: 1) the year-on-year increase in the feed-in tariff of the Yalong River Hydropower, 2) the continuous growth of electricity consumption in the whole society, the shortage of hydropower and the significant increase in thermal power capacity brought about by the commissioning of the Qinzhou Phase III Power Plant at the end of 2023, while the cost of coal burning decreased significantly year-on-year. 3) The growth of new energy installed capacity has led to an increase in electricity consumption.

Comments:

In 2023, the company's hydropower business will achieve revenue of 25.575 billion yuan, a year-on-year increase of 7.61%, and gross profit of 15.384 billion yuan, a year-on-year increase of 5.13%, accounting for 75.2%. The thermal power business achieved revenue of 22.874 billion yuan, a year-on-year increase of 13.09%, and gross profit of 2.467 billion yuan, turning losses into profits, accounting for 12.1%. The new energy business achieved revenue of 4.555 billion yuan, a year-on-year increase of 25.86%, and gross profit of 3.619 billion yuan, a year-on-year increase of 25.1%, accounting for 12.56%.

Hydropower: In 2023, the water supply in various river basins will be dry year-on-year, the on-grid electricity will decline slightly, and the rising electricity price of the Yalong River will lead to an increase in profitability. In 2023, due to the impact of dry water in various river basins, the company's hydropower on-grid electricity will be 93.643 billion kWh, a year-on-year decrease of 5.05%, of which the company's hydropower on-grid electricity in Q4 will be 24.505 billion kWh, a year-on-year increase of 4.21%, and the average on-grid electricity price of hydropower in 2023 will be 0.300 yuan/kWh, an increase of 10.29% year-on-year. In terms of river basins: 1) Yalong River Hydropower: In 2023, the on-grid electricity of Yalong River Hydropower will be 83.766 billion kWh, a year-on-year decrease of 4.86%, of which the on-grid electricity of hydropower in Q4 will be 22.164 billion kWh, an increase of 3.12% year-on-year. 2) SDIC Dachaoshan: In 2023, SDIC Dachaoshan will achieve 6.148 billion kWh of on-grid electricity, a year-on-year decrease of 9.53%, of which Q4 will achieve 1.314 billion kWh, an increase of 19.15% year-on-year, and the annual average feed-in electricity price will be 0.186 yuan/kWh, an increase of 0.54% year-on-year. 3) SDIC Small Three Gorges: In 2023, the on-grid electricity of SDIC Small Three Gorges will be 3.729 billion kWh, a year-on-year decrease of 1.30%, of which the on-grid electricity in Q4 will be 1.026 billion kWh, an increase of 11.86% year-on-year, and the annual average feed-in electricity price will be 0.251 yuan/kWh, a year-on-year decrease of 4.56%.

In 2024Q1, the water supply of the Yalong River was dry year-on-year, the Little Three Gorges improved, and the on-grid electricity price of hydropower continued to rise. In 2024Q1, the company's hydropower on-grid electricity was 21.304 billion kWh, a year-on-year decrease of 8.35%, and the average on-grid electricity price of hydropower was 0.318 yuan/kWh, an increase of 4.26% year-on-year. 1) Yalong River Hydropower: In 2024Q1, the on-grid electricity of Yalong River Hydropower was 19.516 billion kWh, a year-on-year decrease of 8.25%, and the average feed-in electricity price reached 0.328 yuan/kWh, an increase of 4.46% year-on-year. 2) SDIC Dachaoshan: In 2024Q1, SDIC Dachaoshan achieved 1.151 billion kWh of on-grid electricity, a year-on-year decrease of 17.74%, and the average feed-in electricity price was 0.187 yuan/kWh, an increase of 1.08% year-on-year. 3) SDIC Small Three Gorges: In 2024Q1, the water supply of SDIC Small Three Gorges has recovered, achieving both volume and price increases, with on-grid electricity of 637 million kWh, an increase of 10.88% year-on-year, and an average feed-in electricity price of 0.271 yuan/kWh, an increase of 4.23% year-on-year.

Thermal power: In 2023, the amount of thermal power will increase significantly, and the decline in coal burning costs will lead to profit recovery. On the revenue side: In 2023, the company's thermal power on-grid electricity will be 54.559 billion kWh, a year-on-year increase of 15.29%, of which the on-grid electricity of thermal power in Q4 will be 12.730 billion kWh, a year-on-year increase of 5.30%. In 2023, the average feed-in tariff of the company's thermal power will be 0.472 yuan/kWh, a year-on-year decrease of 1.87%. Cost side: In 2023, the coal price center will decline significantly year-on-year, with the closing price of Qinhuangdao thermal coal (Q5500) falling by 23.85% year-on-year, and the price increase of Indonesian coal (Q5500) in Guangzhou Port falling by 20.59% year-on-year.

In 2024Q1, benefiting from the commissioning of new units, the amount of thermal power continued to grow, and the electricity price decreased slightly year-on-year. Revenue: Benefiting from the growth of social electricity consumption in some areas and the commissioning of the first unit (660,000 kW) of SDIC Qinzhou Second Power Plant, the on-grid electricity of the company's thermal power in 2024Q1 was 14.254 billion kWh, a year-on-year increase of 17.91%, in addition, the second unit of the third phase of SDIC Qinzhou Power Plant (660,000 kW) has been officially put into operation on April 29, 2024, and the company's thermal power generation capacity is expected to continue to increase. The average feed-in tariff of thermal power was 0.463 yuan/kWh, down 1.91% year-on-year. On the cost side, the coal price in 2024Q1 decreased year-on-year, the closing price of Qinhuangdao thermal coal (Q5500) decreased by 20.09% year-on-year, and the price increase of Indonesian coal (Q5500) in Guangzhou Port decreased by 9.74% year-on-year, and the company's fuel cost pressure continued to ease.

New energy: The growth of new energy installed capacity in 2023 and 2024Q1 will drive a significant increase in electricity consumption. In terms of electricity, in 2023, the company will add 2,432,400 kilowatts of new energy capacity, including 233,100 kilowatts of wind power and 2,199,300 kilowatts of photovoltaic power, and 80,100 kilowatts of new installed capacity in 2024Q1, mainly photovoltaics. Affected by the commissioning of new energy projects and the better wind and solar resources in some regions than in the same period, in 2023, the company's new energy will achieve 9.254 billion kWh, a year-on-year increase of 40.75%, of which 6.338 billion kWh of wind power will be on-grid, a year-on-year increase of 33.24%, and 2.916 billion kWh of photovoltaic on-grid electricity, a year-on-year increase of 60.42%. In 2024Q1, the company's new energy achieved 2.889 billion kWh, a year-on-year increase of 45.32%, of which wind power on-grid electricity was 1.742 billion kWh, a year-on-year increase of 16.17%, and photovoltaic on-grid electricity was 1.147 billion kWh, a year-on-year increase of 134.71%. In terms of electricity prices, due to the continuous improvement of electricity marketization and the impact of the grid parity of newly put into operation units, the feed-in tariff of new energy will decrease in 2023, with the average feed-in tariff for wind power at 0.486 yuan/kWh, down 4.33% year-on-year, and the average feed-in tariff for photovoltaic power generation at 0.665 yuan/kWh, down 21.30% year-on-year. In 2024Q1, the average feed-in tariff of wind power was 0.492 yuan/kWh, an increase of 1.03% year-on-year, and the average feed-in tariff of photovoltaic power generation was 0.551 yuan/kWh, a year-on-year decrease of 33.21%.

Looking forward to the future, the company's Yalong River hydropower business has both stability and high growth, and the Liangyang power station is expected to contribute significantly to the Yalong River hydropower generation, with a long-term installed capacity of more than 10 million kilowatts. Thermal power is expected to continue to benefit from the improvement in performance brought about by the growth of electricity and the reduction of costs, and there is a lot of room for growth under the acceleration of the growth of new energy installed capacity.

The scarcity of high-quality large hydropower assets in the Yalong River is highlighted, and the hydropower business has both stability and high growth. The core asset of the company's hydropower business, Yalong River Hydropower, is the only entity in the development of hydropower resources in the Yalong River Basin. The Yalong River is the third largest hydropower development base in mainland China, and its basin is endowed with superior natural resources, highlighting its scarcity as a high-quality hydropower asset. In addition, three major regulating reservoirs have been built in the basin, namely Ertan, Jinping I and Lianghekou, with strong cascade dispatching capabilities, and the power generation utilization hours of hydropower in the Yalong River basin are high and the inter-annual fluctuation is small, highlighting the robustness of the company's hydropower operation. The planned installed capacity of the whole basin of the Yalong River is more than 30 million kilowatts, of which 19.2 million kilowatts have been developed, and the resources to be developed are abundant. From 2021 to 2022, the Lianghekou and Yangfanggou power stations will be put into operation one after another, with a total installed capacity of 4.5 million kilowatts, and we expect that hydropower in the Yalong River basin will still contribute significantly to the increase in power generation in 2024 as the water storage in the Lianghekou is basically completed, the power generation capacity of the power stations themselves and the cascade compensation benefits for the downstream will continue to be released. In addition, the Kara and Mengdigou hydropower stations are under construction, with a total installed capacity of 3.42 million kilowatts, and the company is expected to put into operation in 2029-2030, while the midstream Yagen I (approved), Yagen II and Sugu and 10 upstream hydropower stations are in the early planning stage, with a total installed capacity of 7.38 million kilowatts.

The complementary advantages of water, wind and solar energy in the Yalong River are significant, and the growth space is expected under the acceleration of the growth of new energy installed capacity. By the end of 2023, the company's total installed capacity of new energy was 7,035,800 kilowatts, including 3,182,500 kilowatts of wind power and 3,853,300 kilowatts of photovoltaics. According to the company's plan, during the "14th Five-Year Plan" period, the company's installed capacity of new energy will reach 14.72 million kilowatts, and the installed capacity growth space will exceed 7 million kilowatts from 2024 to 2025. The company has significant advantages in project acquisition and consumption in building an integrated water, wind and solar base in the Yalong River, and the long-term planned installed capacity of new energy in the water, wind and solar complementary demonstration base in the Yalong River basin exceeds 40 million kilowatts, with great development potential.

Earnings Forecast and Rating: SDIC Power has high-quality, scarce hydropower assets on the Yalong River, and hydropower performance is expected to grow significantly with the improvement of water supply and the release of power generation from the Liangyang power station, while thermal power is expected to continue to benefit from the improvement of performance brought about by the increase in electricity and the reduction in costs. The installed capacity of new energy is growing rapidly, and there is a lot of room for growth in the future. We predict that the company's net profit attributable to the parent company from 2023 to 2026 is 8.39 billion yuan, 9.27 billion yuan, and 9.84 billion yuan respectively, corresponding to a growth rate of 25.1%/10.6%/6.1%, EPS is 1.12 yuan, 1.24 yuan, and 1.32 yuan respectively, and the PE corresponding to the closing price on April 29 is 13.56X/12.26X/11.56X, respectively, maintaining a "buy" rating.

Risk factors: the sharp rise in coal prices at home and abroad, poor water supply in the basin where the company's hydropower projects are located, uncertainty in the electricity price of Liangyang, and the construction progress of the company's new energy projects is not as expected.

According to the calculation of the research report data released in the past three years, the research team of Liu Yahui of Changjiang Securities has studied the stock in depth, with an average forecast accuracy of 77.4% in the past three years, and its forecast attributable net profit in 2024 is 7.515 billion yuan, and the predicted PE is 15.1 based on the current price.

The breakdown of the latest earnings estimates is as follows:

A total of 8 institutions have rated the stock in the last 90 days, with 5 having a buy rating and 3 having an overweight rating, with an average institutional price target of 17.25 over the last 90 days.

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