Company Reports

China Three Gorges Renewables, or CTGR, is a subsidiary of China Three Gorges, the largest hydropower producer in the world and a leading renewable energy player in China. While other sister companies like China Yangtze Power focus on hydropower, CTGR concentrates on other renewable energy including solar and wind. CTGR has a total generation capacity of about 40.0 gigawatts as of the end of 2023. The firm is also one of the largest offshore wind farm operators in China, with 5.5 GW of installed capacity at the end of 2023, representing about 15% of China’s total offshore wind capacity. Furthermore, CTGR owns about 8.9% direct stake in Xinjiang Goldwind Science & Technology, a leading wind turbine manufacturer, as of the end of 2023.

China Three Gorges Renewables’ 11% drop in first-half net profit to CNY 4.0 billion was disappointing. While total power output grew 29% year on year, this was lower than capacity growth of 46%. We believe this is due to poor wind resources (which saw wind output only growing 12%), higher curtailment rates, and a drop in average tariff because of an increasing number of grid parity projects and share of power trading volume. We have witnessed a similar trend in results from our other renewable peers. Consequently, we cut our 2024-26 net profit forecasts by 11%-13% to factor in the weak results.

The year-to-date share price performance of China utilities under our coverage have generally staged a strong recovery since May, given improving sentiment in the Hong Kong equity market and their cheap valuations. In addition, the market is expecting more positive policy measures from the upcoming third plenary session in July. We have seen the National Energy Administration calling for increased investment in the national grid recently to avoid curtailment risk on the back of the significant rise in renewable energy capacity. While we are positive about this in the longer term, we caution that the concerns about slow subsidy settlements and falling tariffs will remain in the near term.

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.

China Three Gorges Renewables, or CTGR, is a subsidiary of China Three Gorges, the largest hydropower producer in the world and a leading renewable energy player in China. While other sister companies like China Yangtze Power focus on hydropower, CTGR concentrates on other renewable energy including solar and wind. CTGR has a total generation capacity of about 40.0 gigawatts as of the end of 2023. The firm is also one of the largest offshore wind farm operators in China, with 5.5 GW of installed capacity at the end of 2023, representing about 15% of China’s total offshore wind capacity. Furthermore, CTGR owns about 8.9% direct stake in Xinjiang Goldwind Science & Technology, a leading wind turbine manufacturer, as of the end of 2023.

Year-to-date share price performance of China utilities under our coverage was generally lackluster, and we believe the market remains concerned about slow subsidy settlements and falling tariffs. We maintained our fair value estimates per share for CGN Power (HKD 2.24); China Longyuan (HKD 12.00); China Resources Power, or CR Power (HKD 25.00); China Suntien Green Energy (HKD 3.66); China Three Gorges Renewables, or CTGR (CNY 4.68); and Datang Renewable, or DR (HKD 2.94). Our preference among the renewable players is China Longyuan given its strong capacity growth and leadership position in the sector. Meanwhile, CR Power is our pick for investors who like exposure to coal-fired power, as the recovery in profitability for the thermal power segment should continue in 2024.

We are initiating coverage of China Three Gorges Renewables, or CTGR, with a no-moat rating and a fair value estimate of CNY 4.68. We think the shares are fairly valued, with 2024 price/earnings of around 15.4 times and a price/book ratio of 1.3 times, based on the Nov. 21 closing price. In October, the parent company, China Three Gorges, or CTG, plans to increase its stake in CTGR by spending between CNY 300 million and CNY 500 million to purchase shares at prices not exceeding CNY 6 per share. We believe this exercise will continue to support CTGR’s share prices. As of the end of October, CTG has spent about CNY 128 million to acquire CTGR’s shares.

China Three Gorges Renewables, or CTGR, is a subsidiary of China Three Gorges, the largest hydropower producer in the world and a leading renewable energy player in China. While other sister companies like China Yangtze Power focus on hydropower, CTGR concentrates on other renewable energy including solar and wind. CTGR has a total generation capacity of about 26.5 gigawatts as of the end of 2022. The firm is also one of the largest offshore wind farm operators in China, with 4.9 GW of installed capacity at the end of 2022, representing about 16% of China’s total offshore wind capacity. Furthermore, CTGR owns about 8.4% direct stake in Xinjiang Goldwind Science & Technology, a leading wind turbine manufacturer, as of the end of 2022.