CHINA POWER (2380.HK) | Optimization of coal power assets, acceleration of green energy production

In 2022, the company actively introduced China National Coal Group's subsidiary, China Coal Power, as a strategic partner and successfully transferred equity interests in the Yaomeng and Dabieshan thermal power projects, with a combined installed capacity of 4.76 million kW. After divesting inefficient coal power assets, the company retained mostly pithead power plants with coal price advantages, resulting in significant optimization of its coal power asset structure.With the improvement in the fulfillment rate of long-term coal contracts and the commissioning of the 2 million kW Shentou Phase II unit, which has the advantage of low-cost coal, the company is expected to effectively reduce its coal-fired power generation fuel costs in 2023 and achieve a comprehensive turnaround in its coal power assets.

As of the end of 2022, the company's total installed capacity was 31,599 MW, of which the total installed capacity of clean energy was 20,519 MW, accounting for 64.94%. Excluding the injection of assets by the parent company, the company plans to reach 30 GW of clean energy installed capacity in 2023, with a proportion exceeding 70%.Currently, the company's ongoing projects have reached 8 GW. With the elimination of factors related to the COVID-19 pandemic and the downward trend in component prices, it is expected that wind and solar power installation for the company will significantly accelerate in 2023.

In 2022, the 23 project companies injected by the State Power Investment Corporation had a combined total installed capacity of 2,155.4 MW and achieved a net profit of RMB 670 million. As of the end of 2022, the clean energy installed capacity of the State Power Investment Corporation was approximately 139 million kW. As the flagship clean energy platform of the State Power Investment Corporation, the injection of high-quality wind and solar assets by the parent company is worth looking forward to.At the same time, the company completed two rounds of stock incentive plans in 2022, granting a total of 103 million shares at exercise prices of HKD 4.82/share and HKD 4.90/share, respectively, far higher than the current stock price. The expectation of State Power Investment Corporation's asset injection + equity incentive plan is conducive to boosting market confidence.

We have raised the company's target price to HKD 4.38, which corresponds to 12x and 8.6x PE ratios for 2023 and 2024, respectively. The target price represents a 41% upside potential compared to the current price, and we maintain our Buy rating.