CGN Power Co., Ltd_ Takeaways from 1Q25 Conference Call

Summary of CGN Power Co., Ltd 1Q25 Conference Call Company Overview - Company: CGN Power Co., Ltd - Industry: Utilities - Region: Asia Pacific, specifically China Key Points Market Tariff and Performance - The overall market tariff for CGN was Rmb0.36/kWh, a decrease of 3.46 cents year-over-year [3] - In 1Q25, Guangdong accounted for 36.5% of market volume, an increase of 8.7 percentage points [3] - The decline in power tariff was attributed to spot market trading, with management indicating that the impact from the spot market will be limited in the upcoming quarters [3] Spot Market Trading - In 1Q24, CGN procured approximately 400 million kWh from the spot market, achieving a margin of over 10 cents/kWh [3] - In contrast, in 1Q25, CGN sold around 30 million kWh to the spot market at approximately Rmb0.29/kWh, negatively affecting the overall market tariff [3] Ancillary Service Fee Savings - The trial run of the power spot market in Liaoning province resulted in savings of approximately Rmb500 million in ancillary service fees for CGN's Hongyanhe plant [4] - Continuous operations of the spot market in Liaoning are expected to commence by the end of the year [4] Project Pipeline - CGN has a robust pipeline with at least 10 new units planned for construction at existing nuclear bases, which are anticipated to receive approval in the coming years [4] Financial Performance - The Guangdong market tariff decreased by 8.2 cents year-over-year to Rmb0.33/kWh, which was more significant than the decline in annual contracts due to spot trading [9] - Guangxi's market tariff fell by 6.9 cents year-over-year, while tariffs in Liaoning and Fujian remained mostly flat [9] - The company completed five outages in 1Q25, with plans for six outages each in Q2 and Q3, and two in Q4 [9] - Full-year R&D costs are expected to be comparable to 2024, with a higher tax burden in 1Q attributed to a one-off adjustment [9] Valuation and Risks - A P/E multiple of 13x is applied to the 2025E EPS, reflecting an expectation of accelerating trends in new projects compared to previous years [14][15] - Risks to the upside include higher-than-expected utilization, upward adjustments of on-grid tariffs, and timely approvals of new projects [17] - Risks to the downside include lower-than-expected utilization, downward adjustments of on-grid tariffs, and delays in new project commissioning [17] Stock Rating - The stock is rated as "Overweight" with a price target of HK$2.81, indicating a potential upside of 15% from the current price of HK$2.45 [5] Additional Insights - The company is positioned to benefit from the ongoing transition to a more competitive power market in China, with significant cost savings and project expansions on the horizon [4][9] - The management's cautious outlook on the spot market's impact suggests a strategic focus on stabilizing revenue streams amidst fluctuating tariffs [3][4]