HDPI(SH:600027) Huachuang Securities·2024-03-31 16:00Investment Rating - The report assigns a "Strong Buy" rating to the company with a target price of 8.1 CNY, indicating an 18% upside from the current price of 6.87 CNY [1][7]. Core Insights - The report discusses the long-term positioning and valuation of thermal power, emphasizing that the "second half" for thermal power may officially begin in 2024, driven by capacity pricing and auxiliary service revenue enhancement [1][6]. - Short-term, the thermal power index has shown significant excess returns, primarily due to the market adjusting its EPS expectations for thermal power [5][24]. - Long-term, the report suggests that the introduction of capacity pricing will stabilize earnings and reduce volatility, while the growing share of renewable energy will necessitate thermal power's role in grid stability [31][30]. Summary by Sections Company Overview - Huadian International is a leading thermal power operator in China, focusing primarily on thermal power operations after divesting its renewable energy assets in 2021. As of 2023, the company has a total installed capacity of 58.45 million kW, with coal-fired capacity at 46.89 million kW [1][14]. Short-term and Long-term Perspectives - In the short term, the report notes that the market's concerns over coal and electricity price uncertainties have been alleviated, leading to a recovery in thermal power earnings expectations [25][26]. - For the long term, the report anticipates that the introduction of capacity pricing will provide a safety net for earnings, while the increasing share of renewable energy will highlight the need for thermal power to adapt and provide grid support [29][30]. Operational Capability - The report highlights Huadian International's superior operational quality compared to peers, with a focus on ROE recovery and a stable dividend capacity due to reduced capital expenditure needs following the divestiture of renewable assets [37][42]. Profit Forecast and Valuation - The company is expected to achieve net profits of 7.37 billion CNY, 8.13 billion CNY, and 9.30 billion CNY for the years 2024 to 2026, representing year-on-year growth rates of 63.0%, 10.3%, and 14.4% respectively [2][50]. - The report employs a segmented valuation approach, estimating a target market value of 82.6 billion CNY for 2024, based on the net asset values of its thermal and hydropower segments [57][58].