China Three Gorges Renewables Earnings: Surprised on Capacity Expansion, Shares Fairly Valued

China Three Gorges Renewables’ 2023 net profit of CNY 7.18 billion was 1% higher year on year, largely in line with our expectation and its preliminary number. However, first-quarter 2024 earnings were disappointing, with flat net profit despite a 15% and 29% year-on-year growth in revenue and total power output, respectively. We believe this is partly due to higher minority interest and a drop in average tariff, a trend witnessed in other renewable energy peers, due to increasing contribution from grid parity projects and a rising share of power trading volume. We raise our 2024 net profit forecast by 8% but cut 2025-26 estimates by 3%-8%, as higher-than-expected capacity expansion in 2023 is offset by a change in capacity mix, whereby solar capacity, which has lower utilization hours than wind capacity, is growing faster. As such, we marginally cut our fair value estimate to CNY 4.66 per share from CNY 4.68, and we think the shares are fairly valued currently.