In a dual-carbon context, power companies are all transitioning to new energy fields such as wind power and thermal power, trying to make new breakthroughs in performance and valuation, yet most of them have not escaped their dependence on thermal power. For example, Huadian International Electric Power (01071) is one of the few that sticks to the development of thermal power.
The Zhitong Finance App learned that recently, Huadian International Electric Power announced that it will achieve net profit of 40.9-4.91 billion yuan in the first three quarters of 2023, an increase of 76%-111% over the previous year. After deducting non-recurring profit and loss, net profit of shareholders of 37.5-4.57 billion yuan, an increase of 100%-144% over the previous year.
In the first three quarters, according to the consolidated scale, the company completed a total of 173 million megawatt-hours of power generation, an increase of 3.33% over the previous year, and 162 million megawatt-hours of feed-in electricity, an increase of 3.28% over the previous year. The average feed-in tariff was about RMB 518.01 per megawatt-hour, a slight increase of 0.4% over the previous year. The company's core revenue is in the electricity sales sector. The sharp increase in profit is, on the one hand, an increase in electricity sales, and on the other hand, a decrease in coal prices (fuel costs), which has led to a sharp increase in gross profit.
As the core platform under the Huadian Group, the electricity sales sector of Huadian International Electric Power is basically coal power, accounting for nearly 90% of power generation and feed-in electricity generation. Losses in the past two years have been caused by high coal prices. Will this year be extremely successful?
The performance is steady, and the focus of development is still coal power
The Zhitong Finance App learned that Huadian International is an integrated platform for Huadian Group's conventional energy power generation business. The company's power generation assets are spread across 12 provinces across the country, including coal power, gas power, and hydropower. According to the third quarter disclosure, it mainly operates 27 coal power plants, 11 gas power plants, and 4 hydropower plants. In terms of power generation, these electricity accounted for 88%, 7.94%, and 4.08% respectively in the first three quarters.
The company's revenue sources include electricity sales, heat sales, and coal sales. The three major businesses all maintained a growth trend. The compound revenue growth rates for 2020-2022 were 16.65%, 16.1% and 9.14% respectively. The first half of 2023 increased 9.56%, 11.88% and 525.3% respectively, with revenue shares of 79.8%, 9.28% and 10.91% respectively.
The company's core assets are coal and electricity, which generates core revenue and profit. Coal is also partially sold as fuel. Prices fell in the first half of the year, but sales volume greatly increased business revenue. There was a sharp rebound in Q3 coal prices, but it was still possible to double profit growth. It can be seen that the company has control over supply-side costs. Unlike other peers, the company's focus is still on developing coal-fired power. The new generators in the first half of the year were all coal-fired generator sets. Four of the approved and under construction units were coal-fired generators, accounting for more than 50% of the installed capacity.
It is worth noting that the company is highly regional. Its main installed capacity is located in Shandong and Hubei. It has two major core customers, namely State Grid Shandong Electric Power and State Grid Hubei Electric Power. The two customers brought in 47.26% of revenue in 2022. However, the company is actively penetrating into other provinces, especially in the gas and power sector.
In terms of profit, fuel costs are the core costs of Huadian International, while the main fuel is coal. The compound fuel cost growth rate in 2020-2022 was 41.5%, far higher than the turnover level, and its share of turnover also increased from 46.3% to 78.2%. In addition to fuel costs, employee, administrative, depreciation, and financial costs accounted for more than 20% of turnover, causing the company to lose money for two consecutive years. The above cost optimization in the first half of 2023 included a decrease of 11.46 percentage points in the core fuel cost ratio, resulting in a sharp increase in net profit. Net profit increased to 4.87%, and is expected to rise to 5% in the first three quarters.
Huadian International operates a heavy-asset business. Property, plant and equipment account for 67% of non-current assets, so annual depreciation and amortization are very high, and the heavy asset nature also means that it has the characteristics of high debt. As of June 2023, the company's total liabilities were 146.9 billion yuan, of which interest-bearing liabilities reached 120.089 billion yuan, and bank loans+bonds were 104.16 billion yuan, accounting for 64%, 52.4% and 45.4% of total assets, respectively.
Under high debt, there is high short-term debt repayment pressure. The company has cash equivalent of 6.523 billion yuan and receivables of 13.235 billion yuan within one year, while short-term bank loans alone are 27.14 billion yuan and bonds payable with a one-year maturity of 4.915 billion yuan, and the annual financial expenses paid exceed 4 billion yuan. The pressure can be seen. The company relies on its own capital to expand. Continued financing liabilities will only increase and increase. In the future, it is likely that the majority shareholders will mainly inject assets.
Generous dividends can still be rewarded with substantial dividends
Huadian International is lagging behind in the transformation of new energy, mainly based on the company's advantages in coal power, core development and expansion of coal power units. Hydropower is regional and seasonal, and the layout is limited. However, the wind power and photovoltaic industry have high prospects of benefiting from double carbon, and the current financial situation of the company does not allow aggressive capital expenditure. The company urgently needs to clean up financial issues, so it may be possible to guarantee the accelerated transformation of new energy sources and achieve a multi-track growth curve.
From an industry perspective, social electricity consumption is growing steadily. According to the forecast of the China Telecommunication Union, the maximum electricity consumption load of the entire national society by 2025 will be 1.63 billion kilowatts, an increase of 340 million kilowatts over 2022. Among them, clean energy such as wind and wind showed double-digit growth, continuing to squeeze out the market share of coal power.
However, judging from previous performance, the company achieved coal power plant expansion through self-construction and asset injection by controlling shareholders. The revenue side grew relatively steadily, but the profit side relied on a single variable of coal and was highly sensitive to coal prices. In the first half of the year, coal prices fell significantly, but continued to rebound since Q3, which put pressure on the company's profit in Q4,Moreover, under the power reform, it is not friendly to coal power companies, and profits may be further compressed.
It is worth mentioning that Huadian International places importance on shareholder returns. The payout rate is above 30% all year round, and it insists on paying dividends every year regardless of whether it is profitable or not. The dividend rate is very high. Based on current market capitalization and 2022 dividends, the dividend rate has reached 7.3%, which is much higher than that of peers such as Datang Power. Looking at it from year to year, the dividend rate has been relatively stable in the past two years, mainly due to stock price consolidation and fluctuation, market value fluctuating up and down, and there is little room for premium prices.
The capital market maintains a cautious attitude towards the company. On the one hand, coal power is not an energy development trend, yet the company's expansion activities are still mainly based on coal power, and coal prices have fluctuated greatly, and there is obvious cyclicality; on the other hand, the share of new energy in the company is low, and the market expects the controlling shareholders to inject more clean assets, but the injection time is slow and uncertainty is increasing. Most importantly, the power sector as a whole lacks financial attention, which also heightens wait-and-see sentiment.
In summary, Huadian International has coal power as the core of development, and there is a certain deviation from the policy direction. Performance is highly dependent on coal. In the long run, coal fluctuations lead to high uncertainty. The short to medium term focus is on asset injection by controlling shareholders. However, some possible negative effects are not ruled out, such as rising coal prices weakening profits; the transition to new energy sources falling far short of expectations; and a crisis in debt repayment, etc., all of which may lead to a setback in performance.
Currently, Huadian International has a high dividend rate. Turning a loss into a profit in 2023 is a definitive event. It is likely that it will continue to adopt the dividend level of the past three years. However, short-term stock prices continue to bottom out, and it is still possible to obtain considerable dividend returns from entering the market in the medium term.