China's renewable power generation | Expected to remain profitable in 2023Q2

1. The demand for wind power continues to grow. Longyuan and Datang New Energy will achieve 20-25% profit growth in the first half of 2023, which is basically in line with market expectations.

2. Hydropower is less affected by the weather than expected. In the long run, the weak second quarter performance may provide an entry point for hydropower operators.

3. The construction of nuclear power units is accelerating, and opportunities for nuclear power operators are increasing. It is expected that CGN Power will announce strong profit growth in the second half of the year.

Based on the following analysis, we believe that China's renewable energy power generation has the following trading opportunities and concerns:

The demand for wind power generation increases, and the installed capacity of wind power increases. It is estimated that the installed capacity of wind power in China will reach 58.5GW in 2023, a year-on-year increase of 17%. At the company level, we estimate that Longyuan Power and Datang New Energy will report 20-25% earnings growth in the first half of 2023, basically in line with market expectations. Since thermal power generation may peak before 2025, it is expected that a series of renewable energy equipment such as wind power generation will further expand the development space.

Hydropower will be affected by abnormal base and insufficient inflow in 2Q23, including the Wubai hydropower station, the Yangtze River hydropower generation fell by 22% year-on-year. Power generation fell 14% quarter-on-quarter. We expect earnings to be down approximately 10% sequentially as we factor in higher tariffs and lower costs. But in the longer term, the weak second-quarter results may provide an entry point for hydropower operators.

The progress of new nuclear power units in the first half of 2023, including the grid connection of Fangchenggang No. Operators benefit from increased capacity. At the company level, it is expected that CGN Power’s profit in the first half of 2023 will increase by about 20% year-on-year. Coupled with the relatively defensive business profile, we are optimistic about CGN Power’s performance in the second half of the year.

Equipment utilization might be lower than expected; financing costs might be higher than expected.