Intrinsic Value Chongqing Three Gorges Water Conservancy and Electric Power Co., Ltd. (600116.SS)

• Previous Close: $6.85
• Intrinsic Value: $5.29
• Upside potential: -23%

Stock Valuation Context

Business Model And Market Position

Chongqing Three Gorges Water Conservancy and Electric Power Co., Ltd. is a significant regional player in China's renewable utilities sector, operating primarily in the Chongqing municipality. Its core revenue model is built on the generation and supply of electricity from its owned hydropower assets, which boast an installed capacity of 750,000 kW. This positions the company as a key provider of clean energy within its regional grid. Beyond power generation, the company diversifies its income streams through a suite of engineering and construction services. These include electrical and mechanical equipment installation, maintenance, and the contracting of electrical, lighting, water conservancy, and hydropower projects. This integrated approach allows it to capture value across the energy infrastructure lifecycle. Operating in a highly regulated market, the company's strategic position is reinforced by its long-established history, dating back to 1929, and its critical role in regional power stability and development, providing a degree of defensive positioning within the utilities landscape.

Revenue Profitability And Efficiency

The company reported robust revenue of CNY 10.3 billion for the period. However, net income of CNY 309.7 million indicates relatively thin margins, which is characteristic of capital-intensive utility operations. Profitability was impacted by significant capital expenditures, reflecting ongoing investment in its power generation and grid infrastructure assets to maintain and potentially expand its operational capacity.

Earnings Power And Capital Efficiency

Diluted earnings per share stood at CNY 0.16, translating the net profit into a per-share metric. The company generated solid operating cash flow of CNY 898.3 million, which provides essential funding for its operations. This cash generation is critical for supporting its substantial investment activities, as evidenced by the high capital expenditures relative to income.

Balance Sheet And Financial Health

The balance sheet shows a strong liquidity position with cash and equivalents of CNY 1.69 billion. This is offset by a considerable total debt load of CNY 8.77 billion, which is typical for utilities funding large-scale, long-life infrastructure assets. The company's low beta of 0.48 suggests its financial profile is perceived as stable and less volatile than the broader market.

Growth Trends And Dividend Policy

The company demonstrates a shareholder-friendly capital allocation policy by paying a dividend of CNY 0.09 per share. Growth is likely driven by regional energy demand and potential capacity expansions, though the high capex indicates reinvestment is a primary use of cash flows to sustain and modernize its existing asset base for the long term.

Valuation And Market Expectations

With a market capitalization of approximately CNY 10.4 billion, the market valuation reflects the company's role as a regional utility provider. The valuation incorporates expectations for stable, regulated returns and the long-term nature of its cash flows, balanced against the high leverage required to operate its capital-intensive business model.

Strategic Advantages And Outlook

The company's strategic advantages are rooted in its established hydropower assets, which provide renewable and reliable energy, and its vertically integrated service offerings. Its outlook is tied to regional economic growth, energy policy supporting renewables, and its ability to efficiently manage its substantial debt burden while continuing to invest in necessary infrastructure upgrades and maintenance.

Sources

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