What's new
Huaneng Power International’s (HPI) electricity sales volume of domestic power plants rose 13.23% YoY to 430.17bn kWh, and average on-grid electricity settlement price climbed 4.41% YoY to Rmb431.88/MWh in 2021. The proportion of direct electricity sales grew 3.3ppt YoY to 61.63%.
Comments
2021 electricity sales volume rose 13.2% YoY; rising proportion of electricity sales volume to coastal provinces and mild increase in contribution from wind and solar power. Electricity sales volume of coal-fired and gas-fired generators rose 10.8% and 26.2% YoY in 2021, maintaining high albeit slowing growth to 1.0% and 3.7% in 4Q21. Amid HPI’s green transformation, the firm’s wind power and solar power business performed strongly with full-year electricity sales volume up 46.8% and 46.9% YoY to 19.87bn KWh and 3.41bn KWh in 2021, and their combined contribution to total electricity sales volume rose to 5.4% from 4.2% in 2020. Hydropower was relatively weak with full-year power sales volume down 6.6% YoY in 2021.
Coastal provinces accounted for over 50% electricity sales volume in 2021, with the top-5 including Shandong (19.0%), Jiangsu (9.9%), Zhejiang (7.4%), Guangdong (7.3%), and Jiangxi (5.2%), while Shanghai and Fujian each represented 4.7% of the total. Electricity sales volume grew the fastest in Inner Mongolia (+166% YoY), Guizhou (+87% YoY), Chongqing (+50% YoY), Guangdong (+34.8% YoY), and Zhejiang (+31.2% YoY).
Electricity prices beating expectation and significantly rising in 4Q21. HPI’s comprehensive electricity prices rose 4.4% in 2021, which we think was mainly driven by: 1) a rapid rise in the electricity prices of coal-fired and renewable energy projects in coastal provinces and swift growth in power volume; and 2) YoY narrowing of the discount for direct electricity sales. We estimate 4Q21 comprehensive electricity prices at Rmb474.40/MWh, with YoY and QoQ growth at 13.9% and 14.1%.
Incremental controlled capacity at 5.2GW with 3.2GW for wind and solar power, missing expectation. HPI’s 2021 incremental installed capacity of thermal power, wind power, solar power, and biomass power was 2.0GW, 2.4GW, 0.8GW and 0.03GW. The growth of wind and solar power was much lower than previous plan of 8.34GW. We think the firm delayed some projects due to high prices along the solar power value chain, but we do not rule out that a portion of wind power projects will be connected to the power grids in 1Q22.
Valuation and recommendation
Considering high coal prices and potential impairment pressure in 4Q21, we adjust our 2021 attributable profit forecast to a loss of Rmb9.4bn (with attributable profit to ordinary shareholders at a loss of Rmb11.26bn). As the price premium of direct electricity sales beats expectation, we raise our 2022 earnings forecast 16.0% to Rmb9.03bn, and introduce our 2023 forecast at Rmb11.51bn. The A-shares are trading at 12.9x and 10.1x 2022-2023e P/E, and the H-shares at 6.3x and 4.9x P/E. We maintain OUTPERFORM ratings for the A-shares and H-shares, with TP for the A-shares at Rmb8.27 (14.4x and 11.3x 2022-2023e P/E with 11.5% upside) and for the H-shares at HK$4.90 (7.3x and 5.7x 2022-2023e P/E with 16.1% upside).
Risks
Coal prices beating expectation; implementation of market-based power prices miss expectation.