China Longyuan Power (916 HK_ CH)_H_A_ Buy_Buy_ Signs of weakness but value remains

Summary of China Longyuan Power Conference Call Company Overview - Company: China Longyuan Power (916 HK/001289 CH) - Industry: Electric Utilities Key Financial Results - 1Q25 Net Profit: RMB 1,902 million, a decrease of 22% year-over-year (y-o-y) [1] - Profit from Continuing Operations: Down 16% quarter-over-quarter (q-o-q) [1] - Revenue: RMB 8,140 million, a decline of 19% y-o-y [19] - Gross Profit: RMB 3,468 million, down 14% y-o-y [19] - Basic and Diluted EPS: RMB 0.23, a decrease of 21% y-o-y [19] Core Points and Arguments - Weak Results: The weak performance was attributed to: - Seasonal weakness in wind resources and grid curtailments - Increased staff costs and depreciation & amortization (D&A) in line with a 20% increase in wind and solar capacity [1][2] - Milder than expected drop in power sales tariffs [1] - Curtailment Pressure: Cumulative wind/solar installations reached 1,481 GW in 1Q25, with power output from wind and solar increasing by 15% and 44% y-o-y, respectively. This has led to increased curtailment pressure, particularly in provinces with weak local demand [2] - Earnings Estimates: Earnings estimates for Longyuan were cut by 6-8% for 2025-27 based on the latest data, which was not surprising to the market [2][25] - Target Prices: The target prices were adjusted to HKD 8.30/RMB 21.30 from HKD 8.70/RMB 22.40, reflecting attractive value at 0.6x 2025e P/B for H-shares [2][25] Segment Performance - Wind Power: - Revenue decreased by 2% in 1Q25, with power generation volume up by 4% despite a 10% increase in installed capacity to 30.4 GW. Utilization fell by 9% to 585 hours, and grid curtailments increased to approximately 4% [8][20] - Market-based power sales tariffs dropped by 9% y-o-y [8] - Solar Power: - Revenue increased by 43% due to a 56% rise in power generation volume. Cumulative capacity rose by 66% to 10.7 GW by the end of 1Q25 [8][20] - New Builds: Longyuan added 36 MW of new renewable capacity in 1Q25 and plans to add 5 GW in 2025, focusing on improving operating efficiency rather than capacity expansion [8] Valuation and Risks - Valuation Metrics: - Current share price: HKD 6.10, with an upside of 36.1% to the target price [5] - Target price for A-shares: RMB 21.30, with an upside of 26.9% [5] - WACC: 6.4%, with a terminal growth rate of 1.5% [26] - Risks: - Potential risks include stronger-than-expected coal prices affecting coal power profits, lower-than-expected tariffs, and weaker utilization leading to reduced power generation and revenue [26] Other Important Information - Market Data: - Market cap: HKD 110,200 million (USD 14,207 million) [5] - Free float: 95% for H-shares, 9% for A-shares [5] - 3-month average daily trading volume: USD 24 million for H-shares, USD 18 million for A-shares [5] - ESG Metrics: - Employee costs as a percentage of revenues: 11.2% - Female board members: 12.5% [13] This summary encapsulates the key points from the conference call, highlighting the financial performance, segment results, valuation, and associated risks for China Longyuan Power.