Bank of China International released a research report sayingCasinoroulettewheelTo reiterate Longyuan Power's (00916) "Buy" ratingCasinoroulettewheelThe profit forecast for 2024-25 will be reduced by 11% Murray 14%, and the target price will be adjusted to 10%Casinoroulettewheel.8 Hong Kong dollars, but it is believed that the company's shares have regained their attractiveness and deserve re-examination. The bank notes that differentiated renewable energy trading policies across provinces have failed to help reduce end-user costs and may not be conducive to China's ambitions to promote new energy development. It is also considered that other negative factors of green power operators, such as subsidy arrears, large instead of small impairment, etc., have also been fully reflected in the stock price. Longyuan's current Phand B and Pamp B valuations are both historically low.

The main points of BOC International are as follows:

Fundamental risk is fully priced.

The poor performance of Longyuan stock price is mainly due to three reasons: 1) subsidy arrears; 2) electricity price and power limitation pressure; 3) the impairment of large and small projects. The bank believes that 1) the faster-than-expected growth rate of electricity demand in China is conducive to the increase of renewable energy fund income, and the subsidy gap may be closed ahead of schedule; 2) short-term electricity prices and power cuts do have pressure, but it is expected to be gradually alleviated under policy support, UHV line construction and new load construction in the north; 3) the 1.5 billion impairment of large-for-small assets last year was made in advance for 2024-25, so the possibility of re-provision this year is reduced. And replacing small jobs with big ones will improve Longyuan's profitability in the long run.

Behind the pressure of electricity price

The bank noted that the national average grid purchasing price in the first five months of this year was 3% lower than that in 2023.Casinoroulettewheel.7% or 1.56 cents per kilowatt-hour, a decrease less than 2-2.5 cents per kilowatt-hour for capacity launched in 2024. This means that the new affordable new energy projects and the decline in new energy prices last year have not fully benefited end users. Such a situation may require a certain policy response to optimize.

Substituting the big for the small brings long-term benefits.

As mentioned in the report of October 2022, although replacing the large with the small will bring some impairment due to the removal of old fans in the short term, it will eventually improve the long-term ROE of Longyuan. In the exchange after the first quarterly report, the management mentioned that the utilization hours of the Dabancheng project in the company's first batch of transformation projects can now reach 3700 hours, which is consistent with the bank's estimate of 3500-3900 hours in the project analysis the year before last. Therefore, we can refer to the transformation life cycle return analysis made at that time. This also confirms the importance of Longyuan in promoting large-scale work instead of small-scale work, which can help the company realize the full potential of its early acquisition of high-quality wind resources.