Shanghai Electric Power Co. Ltd.

Public (SHA: 600021)

Company Facts

Shanghai Electric Power Co. Ltd. was started by Shanghai City Electric Power Company and China Huadong Electric Group Company in 1998.  Currently, the company got transferred into a joint venture company with three main shareholders: China Electric Power Company holding 44.74% shares; China Electric Power International Development Co. Ltd. holding 25% shares; China Changjiang Electric Power Shareholding Co. Ltd. holding 10% shares of the company.

The company is located in one of China’s electricity shortage areas – Shanghai & Zhejiang region, thus has undoubted geographic advantages. Moreover, the company owns five electric power factories with total capacity of 4.96 million thousand-watt per hour, and has become the largest independent electric power producer in Shanghai. The business strategy of the company is ‘base in Shanghai, facing Huadong (East of China) area and targeting premium and best’

In the first half of year 2008, the company has reported a negative growth in net profit margin of RMB 0.56 billion Yuan, which counts 365% decrease corresponding to the previous year. The main reason for the loss is the price increase in coal, which is the major raw material input of the company. There is a possibility to increase the price of the electricity supply, however, under the Chinese government’s macro-policies control, the long-term solution for the company will mainly rely on seeking for new resources in power generation, such as aero-generator, nuclear generator, thermal power generator, etc. Seeing the future trend in the power generation industry, the company has made its strategic movements.

Recently, the company has invested RMB 3000 million Yuan in order to acquire 60% shares of Baling Group Company in Jiangsu Province, and thus became the holding company of Baling Group Company. This strategic movement aims to acquire resources lying in ocean, land, coast line, port, petrol and nature gas of Yancheng city, middle and north of Jiangsu Province, therefore, helps the company to grab market share and gain competitive advantages in building aero-generator and other form of generator power stations in the area. 

Moreover, the company has also stepped in nuclear power generator field. It is said that four companies will jointly invest RMB 0.2 billion Yuan to set up Anhui Wuhu Nuclear Power Co. Ltd. in Anhui province, which aims to explore nuclear power resources and develop nuclear power station projects. The ratios of the investments are Shanghai Electric Power Co. Ltd. 14%, China Guangdong Nuclear Power Group Co. Ltd. 51%, Shenneng Shareholding Co. Ltd. 20%, and Anhui Province Resource Group 15%. Nuclear power is considered as cheaper and sustainable resource for power generation industry in the future. The project is expected to provide substitute resource for power generating for the company.

Financial Overview:

Related Companies:

 --Shareholding Company:

Shanghai Caoqing Thermal Power Limited Liability Company, percentage of rights and interests: 36%

-- Collaboration:

Huaihu Coal-generator Power Limited Liability Company

Shanghai Waigaoqiao Third Electric Power Limited Liability Company.

Shanghai Waigaoqiao Erdian Limited Liability Company.

Shanghai Waigaoqiao Second Electric Power Limited Liability Company.

Shanghai Wuqing Electric Power Limited Liability Company.

Zhejiang Zheneng Zhenhai Gas-generator Power Co. Ltd.

Shanghai Shenlong Real Estate Co. Ltd.

Jiangsu Huadian Wangting Gas-generator Power Co. Ltd.

Xinhu Thermal Power Limited Liability Company.

Shanghai Wuqing Second Electric Power Limited Liability Company.

--Subsidiaries:

China Electric Investment Group Company

Jiangsu Shangdian Jiawang Electric Generation Co. Ltd.

Jiangsu Kanshan Electric Generation Co. Ltd.

Shanghai Shangdian Electric Engineering Co. Ltd.

Shanghai Shangdian Electric Operation Co. Ltd.

Shanghai Waigaoqiao Electric Generation Co. Ltd.

Shanghai Shangdian Caoqing Electric Generation Co. Ltd.

-- Actual Controller:

State-owned Assets Supervision and Administration Commission of the State Council

-- Same Holding Parent Company

Zhongdiantou Financial Co. Ltd.

Zhongdiantou Huadong Branch.

As on 7 August, 2008

Open: 4.17     High: 4.20   Low: 4.08   Close: 4.17    Vol.:2,035,470                  

Key Stats & Ratios

     Unite: RMB 10,000 Yuan

Daily Stats (last one month):

Performance analysis and investment suggestions:

From the lights of the above, Shanghai Electric Power Co, Ltd had excellent business performance in the past three years; however, first half of 2008 was a bit different. The nightmare started earlier this year when the snow storm occurred in south China, which caused the discontinuation in mining and coal transportation difficulties; consequently, the company suffered from shortage in coal supply and coal prices sky-high which has dramatically increased its operational costs. Although this lost can be compensated somehow by increasing electricity price, the action will take time as it is concerning the economical stability and need to get approval from the Chinese government.

The situation of the company is getting worse while Chaoyang Electric Power Factory of Beijing and Dalian Development Zone Thermal Power Generator have been terminated because of environmental protection purposes. The Chinese government has shown determinations towards ‘green-house’ effects of the globe and taken responsibilities to create a more eco-friendly society. As one of the results, high-pollution enterprises, such as Shanghai Electric Power Co. Ltd. will have to pay even more for its carbon dioxide exhausts and have to invest in eco-friendly manufacture equipments.

Facing the do-or-die choice, the company has made movements in seeking for alternative power generating resources substitutive of coal. However, it requires large amount investments, and will not show benefits in near future. Therefore, I assume that the company’s business performance will not be improved any sooner, instead, the huge investment burden will put the company in check.

In my opinion, the stock price has dropped under its market value, and there is no obvious stimulation to gear up the stock performance at the moment. Therefore, investors should be very careful with their investment decisions, while current shareholders have to be patient if expecting rewards at all. An alternative choice would be cut off the holdings and looking for better stock elsewhere.