Huaneng Power International Inc.（902.HK）| Coal power profitability expected, new energy installed capacity to grow rapidly

In Q1 2023, the company achieved a revenue of RMB 65.27 billion, an increase of 0.03% YoY, and a net profit of RMB 2.25 billion, an increase of 335.30% YoY, with a basic earnings per share of RMB 0.10. Coal power generated a slight loss of RMB 70 million in Q1, while wind power and solar power achieved profits of RMB 193 million and RMB 34.5 million, respectively. The average settlement price of electricity during this period was RMB 518.69/kWh, an increase of 3.33% YoY, and the average operating hours of power generation equipment decreased by 52 hours YoY to 919 hours. The proportion of market-based trading volume for the company in Q1 2023 was 86.78%, a decrease of 2.14 percentage points YoY.

As of Q1 2023, the company has signed long-term contracts for coal totaling around 150 million tons, covering about 95% of domestic demand. The fulfillment rate of the company's long-term contracts was 75.7% in Q1 2023 (compared to 68% in 2022), and the unit price of standard coal consumed by domestic mining machinery was about RMB 1,132, a decrease of about RMB 37 from Q4 2022, approaching the breakeven point of coal machinery. Based on the supply and demand situation of the thermal coal market in Q2 2023, coupled with the consumption of high-priced coal inventories in Q1 2023, it is expected that the unit coal cost of the company's coal-fired power generation will continue to decline in Q2 2023, resulting in improved profitability.

In Q1 2023, the company added 1.299 million kW of new installed capacity, including 111,000 kW of wind power, 693,000 kW of solar power, and 495,000 kW of gas power. As of Q1 2023, the company's controllable installed capacity had reached 126,648,000 kW, with wind and solar power reaching 20,560,000 kW. In 2022, the approved scale of wind and solar power projects for the company reached approximately 36 GW, with 70% being solar power and 30% being wind power. To achieve the company's goal of adding 40 GW of wind and solar installed capacity and increasing the proportion of clean energy to 45% during the 14th Five-Year Plan period (2021-2025), it is expected that the growth rate of wind and solar power installation for the company will significantly accelerate from 2023 to 2025, bringing about high growth in new energy profits.

Target price raised to HKD 6.26, maintain Buy rating:

We raise the company's target price to HKD 6.26, which corresponds to 10x and 8.2x PE ratios for 2023 and 2024, respectively. The target price represents a 30% upside potential compared to the current price, and we maintain our Buy rating.

Significant increase in coal prices; reduction in electricity prices; lower-than-expected growth in electricity demand.