China Longyuan’s 2022 Results In Line; Shares Undervalued

We keep China Longyuan’s fair value estimate at HKD 14, and we think the shares are attractive currently given the firm’s strong renewable energy capacity growth, with 2023 price/earnings of around 9.6 times. While Longyuan’s 32% year-on-year fall in 2022 net profit to CNY 4.9 billion was disappointing, this was in line with its preliminary earnings guidance. The weak earnings were mainly attributable to CNY 2.0 billion of impairment losses, but they don't affect Longyuan’s cash flow. In fact, Longyuan’s 2022 operating cash flow rose to CNY 29.6 billion from CNY 18.1 billion in 2021, due to collection of CNY 20.8 billion of subsidies owed by the government. With the kitchen-sinking exercises done in 2022, we think impact from the ongoing subsidy audit should be limited.