China Resources New Energy Aims to Raise 24.5 Billion Yuan in IPO Amid Subsidy Cuts and Storage Project Challenges

China Resources New Energy has submitted its IPO application, aiming to raise 24.5 billion yuan. This comes at a time when subsidies are decreasing and energy storage projects are becoming critical for success. If successful, this IPO will set a new record on the Shenzhen Stock Exchange.

As the sole platform for China Resources Power in the new energy sector, China Resources New Energy holds a significant position within the country’s power generation landscape, being one of the top five major power groups. However, despite this strong backing, the company is facing a pressing need for funds. According to its prospectus, the total investment for its current projects exceeds 40 billion yuan with a total installed capacity of 7.17 million kilowatts, representing one-quarter of the company’s total capacity.

While China Resources New Energy has a strong operational foundation in wind and solar power generation, its return on net assets has seen a significant decline. As of September 2024, the company’s total assets reached 193.81 billion yuan. Its revenue from 2021 to September 2024 was 17.134 billion yuan, 18.198 billion yuan, 20.512 billion yuan, and 17.150 billion yuan respectively. During the same period, net profits were 6.576 billion yuan, 6.458 billion yuan, 8.459 billion yuan, and 6.349 billion yuan. Approximately 90% of its profits stem from wind power operations.

The company has maintained a high gross margin of about 60% and a net margin exceeding 35%, which is competitive compared to other energy companies. For instance, China Huaneng reported a gross margin of 33.78%, while Three Gorges Energy and Longyuan Power had gross margins of 55.13% and 37.55% respectively.

Despite these impressive figures, China Resources New Energy is heavily dependent on governmental subsidies, which accounted for 36.79% of its revenue in 2021, dropping to 28.63% by September 2024. In 2023 alone, the company’s renewable energy subsidy reached 6.479 billion yuan. Without these subsidies, net profits would have plummeted significantly, for example, from 8.28 billion yuan down to 1.98 billion yuan.

Moreover, the speed of subsidy payouts has slowed down, with receivables for renewable energy subsidies totaling 20.475 billion yuan by September 2024, representing 64.28% of the company’s total current assets, with a repayment period lasting up to four years.

Recent policy changes have indicated a downward trend in subsidies. In January 2023, the National Development and Reform Commission and the National Energy Administration announced reforms aimed at enhancing market-based pricing for renewable energy. Consequently, the average electricity price for wind power dropped from 0.50 yuan/kWh in 2021 to 0.44 yuan/kWh in 2024, and for solar power, the price plummeted from 0.56 yuan/kWh to 0.32 yuan/kWh, a staggering 43% decrease.

To address these challenges, China Resources New Energy is shifting focus towards energy storage and smart grid technologies, which are essential for mitigating the intermittency of renewable energy sources. The company plans to invest in various projects, including integrated developments in wind and solar energy with accompanying storage solutions. Their goal is to develop a total capacity of 3.81 million kilowatts with an investment of 21.113 billion yuan.

However, the company is somewhat late to the energy storage game, relying primarily on lithium iron phosphate batteries, and lacks advanced long-term storage technologies. Competitors like State Power Investment Corporation and Three Gorges Energy have already initiated large-scale projects in this area.

To keep pace with technological advancements, China Resources New Energy must increase its research and development spending, which has remained relatively low at 30-40 million yuan, insufficient given the challenges ahead. The future remains uncertain as the company strives to transition from being merely a power generator to a provider of high-quality electricity services.