Nuclear is making a comeback!
Nuclear energy is the cleanest and most efficient form of energy. It is extremely reliable unlike solar and wind where they require constant sunlight/wind. Nuclear energy is EXTREMELY SAFE. Yes, you read that right! Its extremely safe, except the fact that it has a very bad stigma and reputation associated with the word nuclear.
Due to the whole world going Net Carbon 0 by 2050, countries have all acknowledge that nuclear is the way to go.
The leader in nuclear energy is China, and the company id like to introduce you to is $CGN POWER(01816)$$Cgn Power Co.,Ltd.(003816)$
CGN Power is a utility company that produces electricity through nuclear power plants and also constructs Nuclear Power Plant (NPP).
CGN Power supplies about 2.5% of China's Electricity. China electricity consumption is increasing rapidly due to more factories and development coming up.
Lets look at the financials:
-Operating Cash Flow has been growing at a CAGR of 18% for the past 7 years. OCF shows the growth of a company.
-The OCF growth is in line with the growth in new Nuclear Power Plants Operated by the company. As of 2021, they have 25 NPP and another 9 is in construction. With the 9 NPP in contructions, the company is expected to grow at a high rate for the next 5 years.
-Free Cash Flow (OCF-CAPEX-Finance Cost) has grown at a CAGR of 12% from 2014-2021. Current Free Cash Flow/H-Share is 26%!
-The company has a high debt to equity Ratio of 200%. The debts are mainly due to the construnction of more NPP. However, my analysis shows that the debt is manageable. The Interest Payment of the Debt is RMB 8B per year, and that is 4 times the interest coverage ratio. The operating cash flow is extremely sufficient to take care of the debt. Their debt has also gotten a bond rating of A by fitch.
-DCF Valuation shows the company's H-share is undervalued by 90% using a discount rate of 10% and a 10Y growth rate of 2%. From my DCF valuation, Fair value is RMB 3.13 / 3.41 HKD per share.
This company has a high growth rate, high free cash flow and it will always profit through market turmoils because electricity is always an essential. I am extremely bullish and I have been building a major position of my portfolio in it. What do u guys think about this company?
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