1. Review of the previous situation
Last year's conclusion on Three Gorges Energy was that the time to generate free cash flow is the time to decide whether to buy, and this year it is still the same idea, the 2023 annual report has been issued, and we will continue to review and analyze the issues that we focused on last year, and the fundamental analysis has not changed.
The company is a power generation company focused on new energy sources such as wind power, and the company's business model is the revenue from the sale of electricity - the gross profit from the expenditure on power generation. The product is not worried about selling, the product price is controlled, the number of products produced is restricted by installed capacity and weather factors, and the product cost is more restricted by the level of operation and management, construction and technical level, which is a relatively stable industry, such as hydropower, nuclear power and railway high-speed coal, etc., are such enterprises.
The units of installed capacity are as follows: 1GW = 1 million kW = 1000MW, 10,000 kW = 10MW, 1MW = 1000kW, 1 kWh = 1 kWh, annual utilization hours. The feed-in tariff generally includes VAT, but the sales revenue generally does not include VAT, and there is a difference of about 10%.
2. Summary and tracking of the 2023 annual report
In 2023, the company's installed capacity will still develop rapidly, as shown in the following table:
The growth rate of installed capacity in 2023 is 34.57%, which is very good, but the power generation capacity has reached 55.1 billion kWh, with a growth rate of 16%, which is lower than the development rate of installed capacity.
Among them, the installed capacity of wind power increased by 3.49 million kilowatts, photovoltaic increased by 9.54 million kilowatts, which is a large range, and sea breeze increased by 620,000 kilowatts.
Unfortunately, this year's annual report does not have any more data for offshore wind power and onshore wind power, which needs to be further disclosed by the company. Judging from last year, the power generation of offshore wind power is not a little better than that of onshore, which is why I am interested in Three Gorges Energy The most important reason is its installed capacity of offshore wind power.
Looking forward to 2024 and the next few years, it can be known from the projects under construction that there are currently 550,000 kilowatts of land wind, 4.15 million kilowatts of sea breeze, and 7.75 million kilowatts of photovoltaic in the construction of the current project, and the overall project progress is a little more than 40%, according to the planning requirements of the previous project progress and construction period, the commissioning time will be around 2024 to 2025, and the specific amount of electricity will increase.
By the end of 2023, the installed capacity of sea wind will be 5.49 million kilowatts, the installed capacity of land wind will be 13.92 million kilowatts, and the photovoltaic capacity will be 19.82 million kilowatts, and the annual utilization hours will be an average of 2,341 for wind power and 1,379 for photovoltaics.
Wind power: 2341×1941=45.4 billion kWh.
Photovoltaics: 1379×1982 = 27.3 billion kWh.
The company's total power generation capacity is 72.7 billion kWh. Compared with the 55.1 billion kWh of electricity generated by the end of 2023, there is an increase of 31%, which is a very certain increase.
As of 2025, the company's current projects under construction are 4.7 million kilowatts of wind power and 7.75 million kilowatts of photovoltaic power, accounting for 24% and 40% of the current number of built respectively, which is the installed capacity that can be achieved in the next two years.
The above is the company's budget and budget unit cost of projects under construction in 2022 and 2023, it can be known that the cost of onshore wind power and photovoltaic is still rising, and the unit cost of offshore wind power has decreased significantly, which also fully shows that the competitive advantage of sea breeze is very obvious, especially in this year's annual report, it is also stated that the maximum single-day power generation reaches 244 million kWh, and the maximum single-day power generation of offshore wind power exceeds 100 million kWh, which is the first in the world in Pingtan in Fujian The daily power generation of 16 MW offshore wind turbines exceeded 380,000 kWh.
This sentence can be understood as the highest daily power generation of sea breeze can account for 41% of the total power generation, the installed capacity of sea breeze accounts for 13.6% of the total installed capacity, and the wind power of the head office accounts for 41%, which is the core competitiveness of sea breeze, and this sentence is the key.
3. Study of financial statements in 2022
3.1 Accounts receivable:
The first one, accounts receivable, this statement gives me the feeling that this item is too unique, and the list is as follows:
In the past four years, the increase in accounts receivable is basically similar to the increase in revenue, which has more than doubled, and the accounts receivable of new energy companies are generally new energy subsidies and electricity charges, which are mainly new energy subsidies. The breakdown of receivables as of the end of 2023 is as follows:
On the whole, new energy subsidies do account for a large proportion, but from the perspective of funding sources, there is no need to worry.
In terms of quantity, 3.4 billion yuan of subsidies will be recovered in 2017, 4 billion yuan in 2018, 4.8 billion yuan in 2019, 8 billion yuan in 2022, and 6.8 billion yuan in 2023. Moreover, the company has also packaged these receivables as financial assets and issued green new energy bonds, which is also a good way to recover funds.
Judging from the 2023 statement, the company's bad debts are 1.48 billion yuan, accounting for 20% of net profit, accounts receivable account for 138% of revenue, the absolute figure is 36.7 billion yuan, and the new accounts receivable are 10 billion yuan, accounting for 37% of the operating income in 2023. This can be used as an observation point to continue observing.
3.2 Depreciation of fixed assets:
Depreciation is one of the important factors that affect net profit without cash outflow for such companies, focusing on the object, the body of depreciation is fixed assets, from the prospectus, the company's depreciation life is not short, of which the main wind turbines and photovoltaic modules are about 20 years.
The most exciting thing about new energy power generation is that the cost of raw materials is almost zero, hydropower and water resource costs, and photovoltaic and wind power do not find the cost of light resources and wind resources, which is also a happy small place, as for whether such fees will be charged in the future, continue to observe.
In previous years, depreciation expenses accounted for 90% of operating costs, but this year it accounted for 79% of operating costs, and the other 20% of expenses are from December 2022 onwards, domestic power generation enterprises began to implement the "Administrative Measures for the Extraction and Use of Enterprise Safety Production Expenses", and the provision of safety production expenses in the reporting period increased the operating costs.
Depreciation expense accounts for 38% of revenue, and if depreciation expense covers finance expenses, then you don't have to worry about not being able to repay loan interest expenses, which is also important. Some of the operating costs are basically all labor costs, and there is no need to calculate carefully.
3.3 Asset-liability ratio, etc.:
Similar to hydropower companies, this kind of enterprise also has a relatively high debt ratio, for example, at the end of 2023, the asset-liability ratio is 73%, which is completely asset-heavy and high-debt ratio of enterprises.
The gross profit margin and net profit margin are good, but they have declined, the main reason is that the operating cost has increased by about one billion yuan, and the asset-liability ratio is basically in a controllable state.
The financial cost has declined, because the social interest rate is also declining, about 3 points, under normal circumstances, less than the depreciation of fixed assets, cash flow can cover.
In addition, according to the scale and budget of the projects under construction in 2023, there are still 110 billion yuan of project construction on the way, which is still expanding rapidly, and the balance sheet of the expanding Three Gorges Energy looks like this.
3.4 Approximate Free Cash Flow:
At this stage, the Three Gorges Energy, in fact, is meaningless to calculate cash flow, because it is now in a relatively rapid expansion period, and it needs to spend money everywhere, and the cash flow must be tight, but it is good to calculate, just know it.
The company has been listed for two years, with a dividend of 0.078 yuan per share (0.076 in 2022), based on the current 4.74 (5.36 yuan in 2022), the dividend yield is about 1.6% (1.4%), which is really not much.
Compared with the approximate net cash flow of energy-saving wind power, it will turn positive from 2022, and it will have the basic conditions for dividends, but the dividend per share of energy-saving wind power this year is 0.084 yuan, corresponding to his share price of 3.25 yuan, and the dividend yield is 2.58%, which is obviously a little more than Three Gorges Energy, but the dividend rate of energy-saving wind power is 36%, in fact, it is completely more than 80%, then the dividend will reach 5.7%, which is the meaning of us buying them is very strong, and at the end of each year, It also has a lot of free cash flow in hand, so it can also support high dividends, and it is also a good observation object to look at free cash flow alone.
4. Conclusion and valuation
The most important indicators:
On the whole, Three Gorges Energy is now in a stage of rapid expansion, the free cash flow is negative at this stage, the debt ratio is not low but controllable, the installed capacity and power generation capacity hit a new high year after year, depreciation is the largest cost, the proportion of financial and management expenses is reasonable, and the gross profit margin and net profit margin are very satisfactory to a growth enterprise.
According to the general routine of the company's analysis, negative factors should be considered before buying, and I thought about it, the biggest risk for Three Gorges Energy is mainly the two points written last year:
1. The power generation is less than expected, and the main reason for the power generation is not the weather reason, but the equipment life is less than expected or the quality of the equipment is less than the expected service life. This cannot be verified at this stage, and we can only wait for the rose of time.
2. The cost of the project is higher than that of the same type of company, resulting in a decrease in the rate of return, which can be calculated, which is not a difficult matter. From the current point of view, the cost is basically normal.
As for the excessive accounts receivable, high debt ratio, unstable power generation, curtailment of solar and wind power, etc., I don't think it is a risk here, it is a product of a certain stage of normal operation of the company.
About valuation
Regarding the valuation of growth stocks, this is very difficult, and Changdian, Shenhua can not be compared, and energy-saving wind power can not be compared, looking at the Three Gorges Energy things feel that this is a big pie, and the Southern Power Grid energy storage is a bit similar, are looking at the national strategy, large wind power base, large photovoltaic base, etc., implemented on the statement, but can not get immediate returns, that is, no free cash flow, no large dividends, the prospect of uncertainties more, but if you miss such enterprises, it seems to be a loss, In the end, I decided not to give a valuation for the time being, and I still have to wait for the pace of expansion of this company, preferably when his free cash flow is about to return to positive, maybe when I start buying, and I will keep track of it and continue to be my alternative stock.