With the Acquisition of the Group's new energy assets, China Power's transformation accelerated, Alpha highlighted.

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China Power signed acquisition agreements with CLP New Energy and CLP International New Energy on June 30, 2022. It intends to issue additional shares to CLP New Energy at approximately HK$4.4 per share for a transaction price of RMB5.78 billion, with the subject assets being the subsidiary assets of CLP New Energy; it intends to acquire the assets of CLP International New Energy through cash for a transaction price of RMB1.67 billion.

CLP New Energy and CLP International New Energy are both subsidiary assets of China Power’s Investment, the controlling shareholder of the company, and this acquisition is in line with the company's new energy transformation strategic objectives, fully reflecting the company's priority for the acquisition of power assets outside the Shanghai area. It is expected that after the completion of this acquisition of 2.2gw of new energy and other installed capacity (1.6gw wind power + 0.4gw PV + 0.2gw waste-to-energy), the company's new energy installed capacity ratio will increase by 3.32 percentage points.

Shen Wan Hongyuan believes that this acquisition fully reflects the group's support for the company's transformation strategy, and the company's new energy installation is expected to accelerate.

The net assets of the subject assets as of the end of 2021 is RMB 8.45 billion, but the dividend paid to the old shareholders before the delivery is RMB 1.38 billion, considering the dividend and the year-to-date earnings, Shen Wan Hongyuan estimates that the net assets of the subject assets as of the delivery date is about RMB 7.3 billion and the net assets attributable to the mother is about RMB 6.2 billion; the net profit of the subject assets in 2021 is RMB 596 million, and Shen Wan Hongyuan estimates that the net profit attributable to the mother is RMB 540 million. According to the final consideration of 7.45 billion yuan for this transaction, the acquisition corresponds to a P/E ratio of 14 times and PB(LF) of 1.2 times in 2021, which is close to parity, and is expected to have a definite thickening of EPS in 2022.

There’s something worth noticing in this acquisition. First of all, the subject assets have a very low debt ratio, 49.3% at the end of 2021, which is significantly lower than the company's debt ratio and the debt ratio of new energy project development, the subject assets are expected to have an ROE of 10.7% in 2021, with outstanding profitability. Then, the acquired assets have more new energy subsidy arrears, and part of the waste incineration project capacity is in the climbing stage, which is expected to 2022-2023 earnings will have substantial growth, the final EPS thickening and ROE level will be more optimistic. In addition, after the completion of this acquisition, the company's overall gearing ratio is expected to further decline, for the subsequent new energy project investment to further power reserve space.

The company released the new energy transformation target in October 2021, the 14th Five-Year Plan period is expected to add 50gw new energy installation. 2022Q1 new energy electricity sales increased by 51.6% year-on-year, the growth rate ranked first in power transformation targets, reflecting the company's firm transformation confidence. For the group outside the Shanghai area has the right of first acquisition of all power assets, the acquisition of the group's assets will further improve the company's clean energy assets installed, revenue, profit accounted for.