Yangtze Power (600900): Major acquisitions of overseas mature projects accelerate the formation of core capabilities in the distribution of electricity business

Yangtze Power (600900): Major acquisitions of overseas mature projects accelerate the formation of core capabilities in the distribution of electricity business
Event: The company announced that it intends to start with 35.Acquired Peruvian LDS Company at a base price of $ 900 million83.64% of the equity, after the completion of the acquisition, will issue no more than 13 of the remaining LDS companies.A mandatory tender offer of 7% of the equity, after the completion of this 杭州夜网论坛 investment, Yangtze Power will indirectly hold no less than 83 LDS companies.64% stake. Investment Highlights: Acquiring Peru’s power distribution project for distribution and starting large-scale overseas investment.The company’s proposed acquisition target is 100% equity of SAB company held by Sempra Netherlands and about 50% equity of POC company. The basic purchase price is 35.$ 900 million in cash.The previous two main assets were Peruvian LDS83.64% equity, which will trigger a compulsory bid for the remaining shares of LDS after the acquisition of the equity.LDS is the largest power company in Peru, accounting for about 28% of Peru’s national market share. It is listed on the Lima Stock Exchange. It has a permanent franchise for the distribution of electricity in the most developed area of the capital, Lima.KW, 73 reserves of hydropower projects.70,000 kilowatts.The operating income of the LDS company under the consolidated caliber of 2018 was approximately 9.6 billion US dollars, net profit is about 1.6 billion dollars.In the past three years, LDS companies have been operating stably with abundant cash returns.Based on consistent consideration of shareholder returns, the company launched the acquisition of this overview project. Carry out the development strategy of “one body and two wings”: accelerate the formation of the core capabilities of the power distribution business, and realize the extension of the industrial chain.Domestic large hydropower is facing the problem of limited potential development resources. The company has proposed a “integrated two wings” development strategy in the past few years. “One integrated” is the domestic large hydropower, and the “two wings” are the power distribution business and internationalization, looking for long-term performance growth space.The company continues to be optimistic about the development trend of domestic power reform, continues to do a good job in the integration of stock exchange assets, asset management, and operation management, and builds a listing platform for the distribution and distribution of electricity, which gradually forms a synergy effect in the development, distribution, and distribution of electricity industry chain.Since the beginning of the year, it has continued to increase its holdings and effectively control the Three Gorges Water Resources of listed companies, and has introduced the integration of Chongqing local exchange network resources.Considering that the domestic power reform is advancing at a faster pace than expected, and that it is difficult to expand access to switching network resources, the company is also actively seeking overseas development opportunities.This Peru LDS project is a rare overseas large-scale distribution network investment opportunity. Through the acquisition and operation of the Peru project, the company can accumulate effective exchange network management and operation experience. In the long term, it does not rule out dating foreign experience to the inside.Local opportunities increase investment in domestic trading markets. Peru ‘s country investment risk is relatively small, the follow-up policy risks of the LDS project, and exchange rate risk substitution; the conversion to Yangtze Power ‘s successful integration of the LDS project is expected to give full play to the synergy effect to enhance the project’s profit potential.Peru is one of the countries with the lowest risk in South America. The Three Gorges Group has been deeply involved in the South American market for many years and is familiar with local policies and the electricity market.The Three Gorges Group currently owns two hydropower stations in Peru, including the San Gawan Hydropower Station (20.930,000 kilowatts under construction) and Chagaia Hydropower Station (45.60,000 kilowatts have been put into production).The electricity distribution business belongs to the Peruvian government-regulated industry. The yield is approved every 4 years, and the latest approval is 2018 (the approved yield is 12%). At the same time, the government stipulates that the single rate of adjustment cannot exceed 2%, and the long-term yield is obvious.The risk of downward adjustment is small.LDS’s Peruvian bill income is denominated in US dollars, and the conversion fee has a monthly adjustment mechanism for exchange rates and exchange rates. Therefore, the exchange rate risk is mainly reflected in RMB against the US dollar, which is less than the risk of currency exchange in South American countries. The area provided by the LDS company is the core area of Lima, the capital of Peru, and there is room for continued growth in power consumption.The acquisition is about to be completed. The reorganization of the LDS company’s business can form synergy with the other businesses of the Three Gorges Group in Peru. The rich hydropower development experience of the Three Gorges Group can also be used for the development of LDS’s reserve hydropower projects. In addition, considering the financing of the Three Gorges Group on the international marketCosts can also be reduced, and the returns on this M & A transaction can be enhanced through leveraged buyouts and debt swaps. Earnings forecast and rating: The acquisition is still pending government approval, and the transaction price has not been finalized. We will not consider this acquisition for the time being to maintain the company’s net profit forecast for 2019-2021 to 231.7.8 billion, 236.64 trillion and 241.1.1 billion.The current corresponding PE is 18, 17, and 17 times.The company actively develops the internal trading network business to extend the power industry chain, opening up growth space and at the same time partially hedging potential domestic electricity price reduction risks, maintaining a “Buy” rating.