1Q22 results strong and in line with our expectation.
　　China General Nuclear Power Co Ltd (CGN Power) 1Q22 revenue rose 0.17% YoY to Rmb17.18bn, and attributable net profit grew 20.1% YoY to Rmb2.85bn or Rmb0.056/sh, in line with our expectation.
　　On-grid power volume of operated and managed units rose 1.31% YoY to 46.20bn KWh in 1Q22, as Hongyanhe No.5 unit started operation in July 2021 and days of overhaul declined by 43 days YoY. Excluding the units in Taishan, average utilization hours of 24 managed units rose 3.64% YoY to 1,851hrs.
　　Rising exposure to direct power sales; average prices of direct power sales rising 11% YoY. The firm’s exposure to direct power sales rose 6.2ppt YoY to 54% in 1Q22, with the proportion at 27.23% in Guangdong, 100% in Ningde, 83.7% in Hongyanhe and 100% in Fangchenggang. The average prices of direct power sales climbed 11% or Rmb0.0395/KWh YoY to Rmb0.3998/KWh. Specifically, the prices of direct power sales were largely flat with non-direct sales in Guangdong and Liaoning. The prices in Guangxi were Rmb0.41/KWh, slightly higher than non-direct sales. The prices were high at Rmb0.46/KWh for power distributed from Fujian to Eastern China. The overall performance beat our expectation.
　　Trends to watch
　　Future operation of Lufeng No. 5 and No. 6 units to support earnings growth. The State Council approved the Lufeng No. 5 and No. 6 units with Hualong One technology on April 20, and their unit capacity is 1,200MW. The firm aims to reduce construction cost and improve project returns through optimization of construction technology.
　　Working diligently to overhaul generators to enhance utilization hours in 2022. The firm plans 20 major overhauls in 2022. It aims to increase output and maintain minimum average utilization hours in 2022 at the average of the past three years. The firm expects the exposure to direct power sales to increase in 2022, rising to 53-55% in Liaoning, 65% in Fujian and over 90% in Guangxi. While continuing the model of “full capacity power generation at a favorable tariff” in Guangdong, the firm plans to increase 15% of power output for direct power sales from Lin’ao and Yangjiang.
　　Financials and valuation
　　As better-than-expected comprehensive prices for direct power sales, we raise 2022 forecast net profit 7.3% to Rmb11.2bn and introduce 2023 forecast at Rmb12.0bn.
　　H-shares are trading at 8.0x 2022 and 7.5x 2023 P/E. A-shares are trading at 12.7x 2022 and 11.8x 2023 P/E.
　　We maintain OUTPERFORM for A-shares and H-shares. Considering more optimistic earnings forecast, we raise H-share TP 19.8% to HK$2.36 (9.1x and 8.5x 2022-2023e P/E with 13.5% upside) and A-share TP 4.9% to Rmb3.42 (15.4x and 14.4x 2022-2023e P/E with 21.3% upside).
　　Risks
　　Nuclear accidents.