Maintain "Buy": We lower our 2024-2025 EPS by 32.7% and 41.4%, respectively, to RMB0.348 and RMB0.395, in light of Datang Renewable's ("DTR") more prudent capacity expansion outlook and downward pressure on renewable tariffs. We introduce our 2026 EPS forecast of RMB0.441. Based on 6.0x 2024 PE, we lower our TP to HK$2.30 (previously HK$3.10).
While 2023 earnings missed, balance sheet improved on more prudent expansion. DTR recorded 2023 shareholders' profit of RMB2,753 mn (-21.9% yoy), missing our expectation, largely due to lower-than-expected tariffs and higher-than-expected asset impairment. During the year, DTR installed 1.2 GW of wind and solar capacities (lower than our expectation) with disciplined capex of RMB5,893 mn, benefiting from lower equipment costs. DTR guides 2024 capacity growth of 2.0GW, and it had 1.8 GW of new energy capacity under construction by the end of 2023. Thanks to a more prudent expansion approach in 2023, DTR recorded solid cash from operation of RMB7,140 mn and it continued to deleverage with its net gearing ratio down by 3.6 ppts to 169.1%.
Wind repowering remains a priority: DTR's old wind farms enjoy excellent wind resources, presenting significant potential for wind repowering. According to management, DTR's old wind farms in eight regions (e.g. Liaoning, Inner Mongolia, Shandong and Helongjiang provinces) with a total capacity of around 1.96 GW are currently eligible for "replacing small facilities with large ones". We estimate that by the end of 2025, total capacity eligible for replacement would reach around 4 GW. Empirically, wind repowering on average can more than double the generation capacity and triple the power output of a repowered site.
Downside risks: Weaker-than-expected power demand; delay in project roll-out; unfavourable changes of regulations and policies for IPPs; extreme weather conditions.