CGN Power Earnings: Results Beat Market Expectations; Transferring Coverage With HKD 2.24 FVE

We are transferring coverage of CGN Power 01816 with no-moat and stable moat trend ratings, and a fair value estimate of HKD 2.24. We estimate CGN’s net profit to grow at a five-year CAGR of 7.5% over our explicit forecast period, underpinned by its stable nuclear power operations. We think the shares are attractive currently with the firm trading at around 0.8 times price/book and more than 5% dividend yield for 2023.

CGN’s first-quarter 2023 revenue rose 6.5% year on year to CNY 18.3 billion, while recurring net profit rose 23.6% year on year to CNY 3.5 billion. The results were above FactSet consensus, which we believe is largely due to lower finance costs and the income tax rate, as well as higher value-added tax refunds. Meanwhile, total on-grid power generation from subsidiaries was up 7.8% year on year. Going forward, we think the commencement of on-grid power generation for Fangchenggang Unit 3 on March 25, 2023 will support near-term growth of CGN. In the longer term, CGN will add another six nuclear power generating units during 2024-27, with Fangchenggang Unit 4 expected to commence operation in the first half of 2024. We think the firm capacity addition pipeline will increase CGN’s earnings visibility.

CGN’s first-quarter 2023 operating cash flow increased by 13.1% year on year to CNY 4.5 billion. CGN aims to maintain a reasonable increase in the dividend payout ratio during 2021-25 based on the level in 2020 (42.25%). We think this is achievable, underpinned by the robust cash flow generated from its nuclear power projects.