The net earnings of Dongfang Electric in 1-3Q2021 went up 39.0% YoY to RMB1,866 mn, basically in line with our expectation. Quarterly earnings in 3Q2021 went up YoY by 33.5% to RMB518 mn as a result of gross margin improvement and stable operating expenses. Consolidated gross margin in 1-9M2021 went down by 0.3 ppt YoY to 18.8%, while the net margin of the Company was up 0.6 ppt YoY to 5.6%. 3Q2021 quarterly gross margin was up 1.6 ppt YoY to 16.9% and net margin was up 0.6 ppt YoY to 4.8%. In the first 3 quarters, the Company produced 26.77 GW of power equipment, up YoY by 49.2%; new orders during the period surged YoY by 20.0% to RMB46.98 bn.
The NDRC and NEA jointly promulgated a notice on the rehabilitation and upgrading of coal-fired power plants nationwide. Promulgated in early November 2021, the notice’s primary goal is for the national average coal consumption of thermal power to be reduced to less than 300 grams of standard coal/kWh by 2025. For existing coal-fired power generation units that consume more than 300 grams of standard coal/kWh, the implementation for energy-saving transformation should be accelerated. Units that cannot be transformed should be gradually phased out and shut down. During the 14th Five-Year Plan period, the scale of power plant rehabilitation will not be less than 350 GW. This notice is set to boost domestic demand on power station engineering and services.
We maintain the investment rating of "Buy" and raise our TP to HK$15.00. Our new TP corresponds to 15.0x/ 13.4x/ 11.6x 2021 to 2023 PER or 1.2x/ 1.1x/ 1.0x 2021 to 2023 PBR.