China's Top Renewable Energy Generator
The author is an analyst of Shinhan Investment Corp. He can be reached at ws.choi@shinhan.com. -- Ed.
China's top renewable energy generator with second-largest capacity
China Three Gorges Renewables Group is China's top renewable energy generator with a focus on expanding electricity sales through renewable energy project development and investment. Electricity sales account for 98% of the company's top line as of 2021, with 65% coming from wind power, 32% from solar power, and 1% from hydropower. The company’s renewable power generation capacity reaches 22.9GW in total, including wind power capacity of 14.3GW (third largest) and solar power capacity of 8.4GW (largest among listed peers in the Chinese market).
Key beneficiary of accelerating offshore wind power growth
China has accelerated its investment in renewable energy with an aim to achieve carbon neutrality. The stronger-than-ever market boom has continued even in the aftermath of COVID-19, with China’s new installations of solar and wind power facilities through the first five months this year amounting to 23.7GW (+139.3% YoY) and 10.8GW (+38.9% YoY), respectively. The consensus on demand for solar power in 2022 recently increased from previous 70-90GW to 100GW levels. The outlook on market conditions for wind power is even brighter, with bidding on new projects reaching an all-time high of 57GW in 1H22 and set to lead to increased installations in 2023.
Key strengths of China Three Gorges Renewables Group lie in its business portfolio focused on high-margin wind power generation, and its unrivalled market share of 20% in the offshore wind power sector, which is expected to see steep growth at a CAGR over 30% through 2025. Furthermore, the company stands to enjoy notable improvement in both sales and profitability on the decrease in raw material prices and rise in unit prices of renewable energy.
Beneficiary of renewable energy growth and a defensive stock
In line with the government's investment plans, China Three Gorges Renewables aims to expand its renewable energy facilities to a total capacity of 50GW at the least by 2025, pointing to over-20% growth per annum over the next three years. Based on data from WIND, the company's shares are currently trading at a 2023F PER of 19.2x. With its largest peer China Longyuan Power Group trading at a PER of 20.6x, share valuations of China Three Gorges Renewables look undemanding given the company's brighter growth outlook. Trading at a small beta typical of utility stocks, the stock should become increasingly attractive as a beneficiary of renewable energy growth that offers added benefits as a defense stock in the widely volatile market.