Comprehensive Analysis of Leading Renewable Companies: Insights and Investment Recommendations

Broker: OCBC Investment Research Private Limited

Date of Report: 3 December 2024

China Longyuan Power: Balancing Solar Growth and Wind Efficiency

China Longyuan Power stands as a titan in the Chinese renewable energy sector, celebrated as the largest and most established wind farm operator in the nation. Since its pioneering days in the late 1980s, where it laid the foundation for China’s wind power development in Xinjiang, the company has continually harnessed its first-mover advantage to secure premium wind farm locations, optimizing utilization rates.

Investment Thesis

With an ambitious aim aligned with China’s carbon-neutrality agenda, China Longyuan Power is set to experience secular capacity growth. Despite concerns surrounding unfavourable tariff modifications and sluggish subsidy receivable payments, the company maintains a steady trajectory of growth.

Investment Summary

• Fast-Growing Renewable Capacity: In the first nine months of the year, the company bolstered its renewable capacity by 2,650MW, predominantly through solar (2,030MW) compared to wind (626MW). Additionally, it plans to acquire 4GW of renewable assets from its parent company, CHN Energy.
• Subsidy Collections: China Longyuan received CNY3.5 billion in renewable tariff subsidies for the first nine months of 2024, marking an 8.3% increase year on year. Despite a drop in wind tariffs, the firm projects around CNY5 billion in subsidy collections annually.

Growth and Risks

The company is diversifying its portfolio to include photovoltaic projects, and aims to replace older, smaller capacity wind turbines with larger ones to enhance efficiency. Despite this, risks such as slow subsidy payments and potential policy changes could pose challenges. The fair value estimate has been adjusted to CNY18.00 from a previous CNY20.50.

ESG Performance

China Longyuan Power has room for improvement in governance and human capital development, yet excels in renewable energy opportunities and carbon emissions management, scoring a perfect 10 in greenhouse gas mitigation.

Potential Catalysts and Risks

• Catalysts: Higher-than-expected tariffs, significant subsidy cash releases, and reasonably priced asset injections from the parent company.
• Risks: Lower-than-expected tariffs, high-cost asset injections, and difficulties in obtaining subsidy payments.

Valuation Analysis

Company Overview

Founded in 1993, China Longyuan Power is a cornerstone of the renewable energy sector, with projects spanning wind, photovoltaic, biomass, tidal, geothermal, and coal power across China and internationally, including Canada, South Africa, and Ukraine. It was the first new energy company to be listed on the Hong Kong Stock Exchange in 2009 and later on the Shenzhen Stock Exchange in 2022.

Financial Overview

Over the years, China Longyuan Power’s financial performance has seen fluctuations. The company’s revenue peaked at CNY39,871.9 million in FY2021, with operating income reaching CNY14,174.4 million the same year. The net income margin varied, with a high of 18.00% in FY2021 and a low of 12.30% in FY2022.

Final Analyst Declaration and Disclaimer

OCBC Investment Research analysts certify the objectivity of this report, stating that no financial interests or compensations have influenced their analysis. The report is meant for informational purposes and is not a solicitation for any financial activity. Investors are advised to seek personalized financial advice.