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China Fund News reporter heard

On the evening of August 1, Huadian International issued an announcement stating that the company plans to acquire the assets of its controlling shareholder China Huadian Group Co., Ltd. (hereinafter referred to as Huadian Group) and other related parties through the issuance of A-shares and payment of cash, and raise matching funds.

The main business of the target that Huadian International intends to acquire all mentions "mainly engaging in the investment, development and operation management of thermal power generation projects", and it does not involve new energy assets as previously speculated by the outside world.

Huadian Power International is the main platform of the five major power generation groups.The only company that installs only traditional power suppliesHuadian Power International announced that the company intends to Build China Huadian's flagship conventional energy listed company。

As of the close of August 1, the total market value of Huadian International was 60.65 billion yuan. Huadian International announced that the company's shares will resume trading on August 2.

Build China Huadian's flagship conventional energy listed company

The transaction plan shows that Huadian International intends to purchase assets from three related entities.

First, Huadian International intends to purchase 80% of the equity of Huadian Jiangsu Energy Co., Ltd. (hereinafter referred to as Jiangsu Company) held by China Huadian through the issuance of shares or the issuance of shares and payment of cash.

Secondly, Huadian International intends to acquire 51% of the equity of Shanghai Huadian Fuxin Energy Co., Ltd., 100% of the equity of Shanghai Huadian Minhang Energy Co., Ltd., 55.0007% of the equity of Guangzhou University Town Huadian New Energy Co., Ltd., 55% of the equity of Huadian Fuxin Guangzhou Energy Co., Ltd., 70% of the equity of Huadian Fuxin Jiangmen Energy Co., Ltd., and 100% of the equity of Huadian Fuxin Qingyuan Energy Co., Ltd. from Fujian Huadian Furui Energy Development Co., Ltd. by paying cash.

Finally, Huadian International intends to acquire 100% of the equity of China Huadian Group Guigang Power Generation Co., Ltd. from China Huadian Group Power Generation Operation Co., Ltd.

Huadian International said that the above transaction will help enhance the company's controlled installed capacity and market competitiveness, build China Huadian's flagship conventional energy listed company, and better serve the national energy security strategy.

The target assets that China Huadian intends to inject into Huadian International involve conventional energy assets with a total installed capacity of approximately 15.9728 million kilowatts in Jiangsu, Guangdong, Shanghai and Guangxi. These 15.9728 million kilowatts of conventional energy assets account for 27.33% of Huadian International's existing controlled installed capacity of 58.4498 million kilowatts. After the injection of the above assets, Huadian International's controlled installed capacity will increase to 74.4226 million kilowatts.

Industry insiders analyzed that compared with other platforms of the five major power generation groups, although Huadian International is a national leader in thermal power, the distribution concentration of its controlling installed capacity is relatively high. Currently, Shandong is still its most important operating area for coal-fired power, with installed capacity accounting for more than 40%.

Huayuan Securities released a research report stating that if the asset injection is completed, the proportion of Huadian International's units in Jiangsu will exceed 20%, making it its second largest operating area, which will be conducive to expanding its business territory.

Jiangsu Company is the core subsidiary of China Huadian in Jiangsu Province and the main power generation and heating company in Jiangsu Province. It currently has an installed capacity of 6.29 million kilowatts of coal-fired units and 6.252 million kilowatts of gas-fired units. It also has the most advanced million-kilowatt coal-fired generating units in Jiangsu Province.

It’s the right time to inject thermal power assets

In the view of Huadian International, the planned injection of thermal power assets is timely.

First, national policy support provides a good environment for mergers and acquisitions and restructuring of listed companies.In March, the China Securities Regulatory Commission issued the "Opinions on Strengthening the Supervision of Listed Companies (Trial)", proposing to support listed companies in enhancing their investment value through mergers and acquisitions and restructuring, and encouraging listed companies to make comprehensive use of tools such as shares to implement mergers and acquisitions and restructuring and inject high-quality assets.

Second, the profitability of thermal power generation has been restored, and it is time to inject thermal power assets to enhance the sustainable profitability of listed companies.

From the cost side, coal and natural gas prices have fallen since 2023. As my country continues to stabilize its coal and natural gas supply sources and the international environment changes, coal and natural gas prices still have room to fall.

From the demand side, thermal power still plays an important role in providing a safety net for China's power supply structure, and demand is relatively resilient.

From the policy perspective, by the end of 2021, my country will push all coal-fired power generation into the electricity market, and expand the floating range of its trading prices to a level that, in principle, will not exceed 20%, helping thermal power companies to ease power generation costs.

With the triple improvements in cost, demand and policy, the profitability of thermal power companies has improved significantly in recent years.Taking Huadian International as an example, the company's net profit attributable to shareholders of the parent company was -4.965 billion yuan, 99.811 million yuan and 4.522 billion yuan from 2021 to 2023, respectively.

Huadian International said that it is the right time for the company to inject thermal power assets, which will help improve its sustainable profitability and promote the high-quality development of thermal power with the help of the capital market's value discovery mechanism.

Some securities firms have issued research reports to suggest that from an investment perspective, coal-fired power has always had two main lines of bargaining: coal prices and electricity prices. At present, the performance recovery of the coal-fired power sector has been basically completed. The key in the future is to pay attention to the stability of its profitability.

Huayuan Securities released a research report that believes that the current profit margin of the coal-fired power sector has basically returned to the historical reasonable range, and the room for further expansion of the ignition spread is limited. In the future, the further performance of the coal-fired power sector needs to change from cyclical stocks to truly stable income-type utility stocks.

Editor: Xiaomo

Review: Xu Wen

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