CGN Power (CGN) announced FY2019 net earnings of Rmb9.47bn, a growth of 8.8% YoY, mainly driven by new units put into operation. The latest price of A/H shares corresponds to expected dividend yields of 2.6%/4.9%, which look attractive. We expect the completion of existing units and approval of new units to promote CGN’s long-term growth. We forecast 2020E-2022E net attributable earnings at Rmb10bn5/114bn/128bn, corresponding to PE of 7/7/6x. Maintain the “BUY” rating.
EPS was Rmb0.20, in line with expectation
CGN announced its FY2019 earnings, with revenue of Rmb60.88bn, an increase of 19.8% YoY, and net earnings of Rmb9.47bn, up 8.8% YoY, corresponding to EPS of Rmb0.20, up 5.2% YoY. For 4Q19, revenue was Rmb17.74bn, up 28.8% YoY, net revenue was Rmb1.17bn, down 6.3% YoY, and EPS was Rmb0.02, down 23.7% YoY. CGN plans to pay dividend of Rmb0.076 per share, corresponding to dividend yields of about 2.6%/4.9% upon the latest closing price of A/H shares.
New units drive growth
In 2019, CGN has two additional units put into operation, with a total of 24 units in operation and a total installed capacity of 27,142MW, an increase of 11.7% YoY. The annual on-grid electricity sales was 178.97bn kWh, up 14.0% YoY. The average utilization hours were 7,507hrs, decreasing slightly by 0.6% YoY. Electricity sales revenue was Rmb52.78bn, up 14.6% YoY. Power sales gross margin was 47.44%, slightly down 1.72pcts YoY.
Financial situation stable, income tax rates increased
In 2019, the growth rate of CGN's electricity volume was higher than that of its net earnings, mainly due to the increase of income tax by 45% YoY to Rmb1.77bn. We believe this is because of increased annual income tax rates from the 5 units in Yangjiang, Fangchenggang and Ningde. Affected by increased interest expenses due to new unit operation, financial expenses increased by 28.3% to Rmb7.70bn. CGN's leverage ratio at the end of 2019 was 65.1%, a fall of 4.2 pcts YoY. Net operating cash flow was Rmb30.66bn, up 7.7% YoY.
Installed capacity expected to further increase
CGN and its controlling shareholder currently has 5 units under construction, which are expected to be put into operation from 2H21 to 2022. In 2019, a total of 6 units within 3 new nuclear power projects were approved, including 2 units of Huizhou nuclear power plant owned by CGN's controlling shareholder. We look forward to the continued approval of new nuclear power plants to drive CGN’s long-term growth.
Potential risks
Less-than-expected utilization hours, less-than-expected on-grid electricity prices, and slower-than-expected unit consstruction.
Investment recommendation
We maintain the forecast of 2020E-21E attributable net profit of Rmb10.5bn/11.4bn, and add 2022E attributable net profit forecast at Rmb12.8bn, implying 2020E-22E P/E of 7/7/6x. Maintain the "BUY" rating.