CGN Power Earnings: There Were No Major Surprises; Solid Power Generation Growth

We maintain our fair value estimate of HKD 2.24 for CGN Power 01816, following the firm’s largely in-line first-half 2023 results. We think the shares are attractive currently trading at around 0.8 times price/book and with more than a 5% dividend yield for 2023. We estimate CGN’s net profit to grow at a five-year CAGR of 7.5% over our explicit forecast period, underpinned by its stable nuclear power operations.

CGN’s first-half 2023 revenue rose 7.2% year on year to CNY 39.3 billion while recurring net profit rose 21.5% year on year to CNY 7.0 billion. Total on-grid power generation from subsidiaries was up 10.3% year on year, underpinned by the commencement of Fangchenggang Unit 3 on March 25, 2023. Meanwhile, on-grid power generation from associates surged 29.7% year on year, due to the commencement of Hongyanhe Unit 6 in June 2022. We saw average utilization hours rising 7.4% year on year to 3,747 hours. Market-based power generation volume accounted for 55.5% of the total on-grid power generation, largely unchanged from a year ago. In particular, the market-based tariff rose slightly by 0.3% year on year to CNY 0.4022 per kilowatt-hour during the first half of 2023.

In the longer term, we expect CGN to add another six nuclear power-generating units during 2024-27, with Fangchenggang Unit 4 expected to commence operation in the first half of 2024. We think this pipeline indicates a stable capacity addition, which helps CGN’s earnings visibility. Furthermore, China approved six new nuclear units in July 2023, including two generation units at CGN Power’s Ningde project. This reaffirms our view that China will remain supportive of adding nuclear power. CGN is currently conducting preparatory works for Ningde Units 5 and 6. We believe CGN’s capacity expansion will be supported by its robust operating cash flow. In first-half 2023, the firm’s operating cash flow increased by 21.2% year on year to CNY 15.7 billion.