China Longyuan Earnings: Broadly In Line; Buyback to Support Share Price

Founded in 1993, Longyuan 00916 is a pioneer in China’s wind power development. This first-mover advantage, coupled with a capable management team, enabled the firm to secure better wind farm locations, which helps to maximize wind farm utilization rates. Longyuan’s annual wind power utilization hours have consistently outperformed the industry average in China by more than 50 hours during the past decade. Longyuan is the world’s largest wind power producer with consolidated installed wind capacity of about 26.2 gigawatts, or GW, as of end-2022.

Longyuan already owns wind farm projects in Canada, South Africa, and Ukraine, although the scales are still small versus its projects in China. The firm will continue to look for opportunities overseas such as in Central and Eastern Europe, Southeast Asia, Africa and Latin America.

We believe Longyuan’s future capacity growth will be underpinned by a mix of wind power and photovoltaic projects—different from the past, when the firm was mainly focusing on wind power. The firm plans to add 30 GW of renewable energy capacity during the 14th Five Year Plan period, which implies a 18.3% CAGR for renewable energy capacity between 2020 and 2025. We think Longyuan will be able to achieve its ambitious goal as the firm has already obtained development rights of over 18 GW in 2022. Furthermore, we see big potential for Longyuan to improve its efficiency by replacing smaller capacity wind turbines (1.5 megawatts or below) with larger ones for its old wind farms.

We expect Longyuan to remain as an efficient renewable energy operator given its focus in digital and intelligent transformation of its assets. This should help to reduce labor and maintenance needs, leading to improved utilization hours. We estimate Longyuan’s net profit to grow at a five-year CAGR of 27.7% over our explicit forecast period, with operating margin rising to 42.5% in 2027 from the three-year historical average of 33.3%.

In the medium term, we think there could be further positive development for the firm, including the exit of its coal power generation business and the injection of wind power assets (more than 20 GW) by its parent, China Energy Investment.