Yangtze River Power: the first quarter’s electricity supply

In the first quarter of 2020, Yangtze River power generated 35.294 billion kwh of electricity, a slight decrease of 2.44% year-on-year. The decline of electricity is moderate and in line with expectations, and Q1 is expected to achieve stable results. Global interest rate reduction boosts the hydropower connotation value of debt like characteristics, and the security and high dividend boost the company’s defense value. Keep the EPS forecast of 2019-2021 as 0.98/0.95/0.94 yuan, corresponding to the dynamic pe18 / 18 / 18 times. Maintain a “buy” rating.

 

 

 

Power generation in 2020q1 fell 2.4%, in line with expectations. Q1, the company’s total generating capacity is 35.294 billion kwh, a slight decline of 2.44% year-on-year, in line with expectations. During this period, the power generation capacity of the Three Gorges project was 16.486 billion kwh, up 3.43% year on year; Gezhouba 3.678 billion kwh, up 5.06% year on year; Xiluodu 9.868 billion kwh, down 10.05% year on year; Xiangjiaba 5.262 billion kwh, down 8.77% year on year. The water from the power station of Q1 company is of different quality, among which the water from Xiluodu is 12.47% lower than the same period last year, and the water from the Three Gorges is 4.95% higher than the same period last year.

 

 

 

The power drop is mild, and Q1 is expected to achieve stable results. During the 1~2 months of 2020, the cumulative power generation of hydropower in China will reach 121 billion 400 million kwh, with a year-on-year decrease of 11.9%. Only with high quality power supply and coordination and communication can the company’s Q1 electric power decrease be less than that of the whole country, and the electric power decrease is mild. Recently, the company’s external investment is frequent, and the investment income is expected to play a role in helping the company to stabilize its Q1 performance.

 

 

 

Lower interest rates boost intrinsic value, and high dividends are attractive. The epidemic promoted a significant downward trend in global interest rates, with significant impact on the intrinsic value of hydropower companies with debt like characteristics. Our DCF calculation results show that a 50 BPS downward trend in risk-free interest rates will increase the intrinsic value of the company by about 5.4%. In addition, from the perspective of dividend rate, the company’s dividend is highly stable and the dividend rate at that time was close to 4%, which was highly attractive in the market environment at that time. As for the potential risk of electricity price adjustment, the market has expected to hedge the positive factors of interest rate downward. Together with our profit forecast, we have included the impact of the adjustment of electricity price on the company in advance.

 

 

 

The contribution to the company’s performance is expected to increase. In recent years, the company adheres to the strategy of “one main and two wings”, and promotes joint dispatching of power generation side, domestic distribution and distribution of electricity and overseas investment layout through foreign investment. Since 2020, the company has further increased its holdings in large hydropower companies such as SDIC power, Sichuan investment energy, Qianyuan power, etc., and is expected to continue to purchase 83.64% of the equity of Peru’s distribution leading LDS company and 23% of the equity of Huadian Jinsha River middle reaches company. In the long run, the contribution of foreign investment to the company’s strategic value and performance is expected to further improve.

 

 

 

Risk factors: the price of electricity is lower than expected, the incoming water and power generation are lower than expected, and the income of foreign investment is lower than expected.

 

 

 

Investment proposal: we keep the EPS forecast of the company in 2019-2021 at 0.98/0.95/0.94 yuan, corresponding to dynamic pe18 / 18 / 18 times. The company’s property is scarce, its cash flow and dividend payout are expected to be stable, and its value is expected to continue to be recognized in the global interest rate reduction environment. Maintain a “buy” rating.