China National Nuclear Power:Q3results improved,but nuclear power plant utilisation declined

Net profit rose 9% YoY in Q1-Q3 and 30% YoY in Q3

    China National Nuclear Power (CNNP) announced Q1-Q3 results. Q1-Q3 net profitgrew 9% YoY to Rmb3.76bn. Q3 net profit grew a much faster 30% YoY toRmb1.26bn, mainly helped by a Rmb400m YoY decline in financial expenses in Q3 andhigher growth in China's electricity consumption in the quarter.

    Higher power generation growth in Q3, but overall utilisation declined YoY

    According to power generation data announced earlier, CNNP's power generationvolume grew 13% in Q1-Q3 (+17% YoY in Q3). However, we believe utilisation at itsnuclear power generating units declined, given that new installed capacity grew 18%YoY, faster than power generation volume. We estimate the company's Q1-Q3 powergeneration volume implied that utilisation hours totalled 5,571, down 4% from thesame period last year (5,817 hours). Q1-Q3 gross margin contracted vs. the sameperiod last year, from 47% to 43%, due to declining utilisation.

    We expect nuclear power plant utilisation to remain under pressure

    We attribute CNNP's higher power generation growth in Q3 to high summertemperatures and the low base last year. However, the acceleration of solar/windpower installed capacity and implementation of minimum guaranteed utilisation hoursfor solar/wind power plants will further displace the utilisation of nuclear power plants.

    Meanwhile, as the power system reform progresses, we expect nuclear power togradually enter market competition, which will expose it to potential risk of tariff cutsfor off-plan power generation volume.

    Valuation: Maintain Neutral rating and Rmb7.50 PT

    Our DCF-based PT of Rmb7.50 assumes 5.6% WACC. We maintain our Neutral rating,as we believe the company's current valuation has fully factored in its long-term growthpotential and downside risks to utilisation.