At the time of divesting from photovoltaics, China Suntien Green Energy's H shares welcomed Great Wall Life Insurance's stake acquisition

On February 14, the Hong Kong Stock Exchange disclosed that China Suntien Green Energy's H shares were increased by Great Wall Life Insurance on February 12, involving an investment of HKD 9.344 million; after the increase, Great Wall Life Insurance's shareholding ratio rose from 4.87% to 5.0%, constituting a stake increase.

This is also the first stake increase by a non-listed insurance company since the beginning of the year.

Based on the investment strategies over the past two years, this increase by Great Wall Life Insurance is basically in line with market expectations.

In the "stake increase wave" of insurance capital from the second half of 2023 to now, Great Wall Life Insurance has increased its stake in six companies including Wuxi Bank, Green Power Environmental Protection, Chengfa Environment, and Qin Port Co., Ltd., covering sectors such as transportation, environmental protection, public utilities, and banking.

From the analysis of the targets, this stake increase basically continues the logic of last year's stake increases. The selected China Suntien Green Energy H shares also have characteristics of low valuation and high dividend yield.

As of the close on February 14, the dividend yield of China Suntien Green Energy H shares reached 6.34%, with a PE (price-to-earnings ratio) of 6.56 times and a PB (price-to-book ratio) of 0.67 times; at the same time, the AH premium rate is relatively high, reaching 113.42%.

China Suntien Green Energy's main business is the development and utilization of new energy and clean energy, with wind power, photovoltaic, and natural gas businesses under its umbrella, and is controlled by the State-owned Assets Supervision and Administration Commission of Hebei Province.

Since 2024, China Suntien Green Energy has frequently attracted the attention of insurance capital.

In the mid-year report, products under China Life Insurance appeared in the top ten shareholders of China Suntien Green Energy A shares, holding a ratio of 0.04%, ranking 10th, but later exited the top ten shareholders in the third quarterly report;

In the third quarterly report, the Basic Pension Insurance Fund 1302 portfolio appeared in the shareholder list for the first time, holding a ratio of 0.05%.

Affected by fluctuations in wind volume, electricity price adjustments, and consumption contradictions, the company has prominently experienced the phenomenon of "increased revenue but no profit" in recent years.

Especially in the first three quarters of 2022-2024, the company's revenue growth rates were 15.01%, 9.27%, and 18.7% year-on-year, but the profit growth rates were all negative.

However, currently, multiple indicators of China Suntien Green Energy have shown signs of recovery.

For example, the net profit decline in the first three quarters of 2024 has been reduced to 0.74%; with improved wind conditions, the year-on-year decline in electricity generation in the third quarter has narrowed by 5.5 percentage points compared to the second quarter.

While performance is recovering, the strategy has also been adjusted.

At the end of October that year, China Suntien Green Energy released the "Adjustment of Business Development Strategy and Arrangement to Avoid Industry Competition," stating that it would gradually sell off its photovoltaic business and focus on wind power and natural gas.

The company pointed out that due to various factors, the advantages of photovoltaic in new energy are not obvious:

First, the investment return of projects is relatively lower than that of wind power. Before the parity grid connection of new energy, the construction costs and electricity prices of photovoltaic projects are high, with a high proportion of subsidies that are not disbursed in a timely manner, leading to poor cash flow and investment returns;

After the parity grid connection, the utilization hours of photovoltaic are lower than that of wind power, and due to the concentration of generation periods, in the market-oriented electricity trading, some regions have experienced zero or even negative electricity prices, resulting in investment returns that are not as good as wind power projects Secondly, the photovoltaic industry is greatly constrained by changes in land policies. The state has strict regulations on forest land and land use, leading to the demolition of some projects or hindering progress due to difficulties in land acquisition.

HuaYuan Securities analyst Zha Hao expects that divesting photovoltaic assets, under the backdrop of risk absorption and the market-oriented trading of electricity, will help maintain the stability of the company's performance and return on net assets.

According to his estimates, China Suntien Green Energy is expected to achieve profit growth of 3.8%, 19.5%, and 13.8% in 2024-2026; assuming the company's dividend payout ratio remains at the 2023 level, the corresponding dividend yields should be 7.0%, 8.3%, and 9.4%