CGN Power’s 2022 Results in Line With Expectations; Visible Project Pipeline Supports Steady Growth Outlook

We maintain our fair value estimate of no-moat CGN Power 01816 at HKD 2.30 per share, after the company’s in-line 2022 results and a minor tweak of our earnings forecast to incorporate the latest nuclear unit commissioning schedule over the next five years.

We expect the company’s net profit to grow at a five-year CAGR of 5.4% through 2027, up from an average of 1.6% annual growth in the prior three years, underpinned by visible project pipelines. We think the shares are slightly undervalued as of market close on March 16. Given the stable operation at nuclear power stations, we anticipate CGN Power’s cash flows to remain robust. This should support a steady growth in absolute dividend payouts, and the company’s proposed 2022 dividend of CNY 0.087 per share is yielding 5.2% presently.

Operation at nuclear stations is generally stable, and the fluctuation of generation output was largely due to the refueling and repair schedule. In 2022, CGN Power’s maintenance shutdowns were 98 days longer than a year ago, leading to a sharp 330-hour cut in utilization rate and a 1.2% lower power output. CGN Power has scheduled 19 maintenance projects this year, and the expected shutdowns would be 49 days longer than 2022. Despite the challenges, we still expect the company to add 200 hours in utilization rate in 2023, with a 6%-7% year-over-year power output growth, as the restart of Taishan Unit 1 on Aug. 15, 2022, the launch of Hongyanhe Unit 6 on June 23, 2022, and the planned commissioning of Fangchenggang Unit 3 project in first-half 2023, will drive power output growth. In addition, as economy is recovering following the easing of COVID-19 restrictions, the China Electric Council expects power demand to rise about 6% year over year in 2023, up from 3.8% growth in 2022. Hence, we forecast CGN Power’s 2023 net profit to grow 11% from a year ago to CNY 11 billion.