CHINA POWER(02380): The restructuring plan lands beyond expectations, the second growth curve is about to start.

On the evening of April 16, CHINA POWER International Development Limited (02380) announced a significant asset restructuring plan, further clarifying the details of the restructuring transaction. According to the announcement, the proposed transactions are as follows: Transaction 1 - CHINA POWER and Xiangtou International will respectively sell 63% and 37% equity stakes in Wuling Power to Spic Yuanda Environmental-Protection for a total consideration of 24.667 billion yuan, to be paid by Spic Yuanda Environmental-Protection in cash and shares; Transaction 2 - Guangxi Company (a wholly owned subsidiary of CHINA POWER) will sell 64.93% equity stake in Changzhou Hydroelectric to Spic Yuanda Environmental-Protection for 3.068 billion yuan, to be paid by Spic Yuanda Environmental-Protection in cash and shares. The price of the shares issued by Spic Yuanda Environmental-Protection is 6.55 yuan per share. After the completion of the transactions, CHINA POWER will become the controlling shareholder of Spic Yuanda Environmental-Protection. It is expected that the shareholding structure of Spic Yuanda Environmental-Protection will be: CHINA POWER 55.13%, State Power Investment Corporation directly holding 7.8% (to be entrusted to CHINA POWER in the future), Xiangtou International 27.04%, and public shareholders 10.03%. Building a favorable capital structure to effectively stimulate the capital market After the completion of this restructuring transaction, CHINA POWER will hold a stake of 55.13% in Spic Yuanda Environmental-Protection. According to the commitments made by State Power Investment Corporation as disclosed in the announcement, the 7.8% equity directly held by State Power Investment Corporation will also be entrusted to CHINA POWER for management, ensuring CHINA POWER's long-term control of Spic Yuanda Environmental-Protection. In my opinion, after the completion of the restructuring, CHINA POWER will be able to fully leverage the flexibility of the Hong Kong regulatory system, the high valuation of A shares, and high liquidity to fully play the role of the capital market. Fair and reasonable transaction consideration to fully protect and enhance shareholders' interests First, the issuance price of Spic Yuanda Environmental-Protection shares to CHINA POWER is 6.55 yuan, a significant discount compared to the recent share price. Second, based on the disclosed data in the announcement, the transaction PB of the hydropower + new energy assets as of the assessment date is 1.87 times, and the estimated PE for 2024 is about 20 times (due to the negative net profit of the underlying assets in 2023, an effective PE value for 2023 cannot be obtained). In conclusion, I believe that the terms of the agreement will result in significant capital appreciation for CHINA POWER, which is very advantageous for all CHINA POWER shareholders. Clear future operational plans, the second growth curve is about to begin According to the commitments made by State Power Investment Corporation in the announcement, State Power Investment Corporation plans to complete the integration and listing of other hydropower assets within 3 years while maintaining CHINA POWER's continuous controlling position over the hydropower platform. Public information shows that the installed capacity of hydropower assets under State Power Investment Corporation exceeds 25.5 million kilowatts, with this hydropower operation accounting for only about 20%, leaving a considerable operating space for future development. In my opinion, while maintaining the controlling position of Spic Yuanda Environmental-Protection, the operation of the relevant parties needs to be reviewed by the CHINA POWER shareholder meeting, so the subsequent injection plan is expected to further enhance shareholder interests and share growth benefits with shareholders. Plan to increase Spic Yuanda Environmental-Protection's dividend ratio, fully tap the synergies between the two companies According to the announcement, CHINA POWER intends to increase the dividend payout ratio of Spic Yuanda Environmental-Protection to no less than 50%. I believe that this adjustment in the dividend policy will better leverage the positioning of Spic Yuanda Environmental-Protection in the hydropower platform and ensure cash returns for CHINA POWER and other shareholders. In addition, according to publicly disclosed information, CHINA POWER currently manages coal-fired power assets exceeding 20 million kilowatts, and there is potential for synergies with the existing business of Spic Yuanda Environmental-Protection, further enhancing the interests of the two listed companies. In conclusion, after half a year of preparation, CHINA POWER has finally delivered a restructuring plan that exceeds expectations. I believe that through this restructuring, CHINA POWER's interests will be greatly enhanced, and it is expected to quickly initiate a second growth curve, promoting sustainable growth in performance and shareholder returns.