Sichuan Investment Energy (600674. SH) controlling shareholder Sichuan Energy Development Group (formerly Sichuan Investment Group and Sichuan Energy Investment Group merged to set up) plans to increase its stake in the company through centralized bidding in the next 12 months, with an amount of not less than 500 million yuan and no more than 1 billion yuan, and the source of funds is its own or self-raised funds. There is no upper limit on the price of the increase, which will be implemented at an opportune time depending on the situation in the capital market. Prior to this increase, the increasing party and its persons acting in concert had held a total of 2,440,810,525 shares of the company, accounting for 50.07% of the total share capital.

According to public data, Sichuan Energy Development Group was officially established in February 2025, aiming to integrate the two major energy state-owned enterprises in Sichuan Province, that is, to undertake all the assets of Sichuan Investment Group and Sichuan Energy Investment. After the completion of the merger, the controlling shareholder of Sichuan Investment Energy was changed from Sichuan Investment Group to Sichuan Energy Development Group, and the actual controller remained the State-owned Assets Supervision and Administration Commission of Sichuan Provincial Government.

As a leading listed company in hydropower, Sichuan Investment Energy's share price has performed strongly, hitting new highs from 2019 to 2024; Since the beginning of this year, the stock price has fallen by 2.43%, still outperforming the index.

Sichuan Energy Development Group's increase in holdings this time has deep meaning in addition to short-term stimulus to the stock price.

Comply with the policy

Since April 8, a number of listed companies with state-owned assets in Sichuan, including Sichuan Investment Energy, Wuliangye (000858. SZ), Sichuan Road and Bridge (600039. SH) and many other companies have successively disclosed plans to increase their holdings or repurchase plans. Among them, Wuliangye Group announced another increase of 500 million to 1 billion yuan after completing an increase of 500 million yuan in June 2024; Sichuan Road and Bridge launched a repurchase of 200 million yuan, and set a repurchase price ceiling of 150% of the market price.

Financial support is also reducing the cost of these holdings, buybacks. According to the disclosure, 16 listed companies in Sichuan have received 2.4 billion yuan of refinancing support through bank financing channels for repurchase and increase of holdings. Sci-tech enterprises are also actively participating in stabilization operations, such as China Unmanned Aerial Vehicle (688297. SH) took the lead in announcing a 200 million yuan repurchase plan, and XGIMI Technology (688696. SH) and others continued to promote the process of increasing their original holdings. On April 8, Bank of Chengdu and its two state-owned shareholders launched a 1.4 billion yuan shareholding increase plan, becoming the largest single case in Sichuan's current round of shareholding increase.

Sichuan Investment Energy's increase in holdings is somewhat special. Due to the change of equity, it has only been 2 months since the establishment of the entity that initiated the increase in holdings. In February 2025, Sichuan Energy Development Group Co., Ltd. was officially established. From the perspective of history, the restructuring was first announced on November 29, 2024, and it took nearly three months to complete the industrial and commercial registration and delivery procedures, and the efficiency and speed can be called "speed". According to the disclosure, Sichuan Energy Development Group and its persons acting in concert already held 50.07% of the shares of Sichuan Investment Energy, and if the current round of shareholding increase plan is completed, it will increase its shareholding ratio to a higher level, so as to enhance its dominant position in future business strategy, capital operation, governance arrangements and other aspects.

From the perspective of industrial integration, Sichuan Investment Energy undertakes the positioning of "hydropower core platform" under the group. With stable hydropower resources, clear dividend policies and expandable photovoltaic business, the Group is an important window to show the quality of its assets to the outside world. A moderate increase in holdings can also be regarded as a recognition of the platform's fundamentals and valuation, and at the same time reserve space for possible subsequent asset injection and capital synergy.

The increase in holdings may also serve the strategic consideration of the group's overall asset securitization. According to the requirements of the "Three-Year Action Plan" for the reform of state-owned enterprises and the "14th Five-Year Plan for Energy Development", local energy state-owned enterprises need to improve the activity and transparency of the capital market through integration. Sichuan Energy Development Group's increase in its holdings of listed companies is an important practice to improve market value management capabilities and promote the marketization of capital operation mechanisms.

The fundamentals are guaranteed

From asset structure to operational capabilities, Sichuan Investment Energy has continued to be stable in terms of financial indicators and business performance in recent years, and has certain investment characteristics of "bottom position".

In the first three quarters of last year, Sichuan Investment Energy's operating income was 1.087 billion yuan, a year-on-year increase of 6.48%; The net profit attributable to the parent company was 4.422 billion yuan, a year-on-year increase of 15.10%. Against the backdrop of slowing overall earnings in the power sector, the company's steady growth reflects the high quality of its operations.

The core of Sichuan Investment Energy's fundamentals lies in the stable output capacity of its controlling hydropower assets. In the first quarter of 2025, the company's holding companies will have a cumulative power generation capacity of 960 million kWh, a year-on-year increase of 21.98%; Among them, hydropower generation was 906 million kWh, a year-on-year increase of 20.32%. The hydropower generation business has a high gross profit margin and low operating costs, which is the basis of the company's revenue and profit. At a time when traditional energy prices are volatile, the cost of hydropower is stable and provides a good financial hedge.

On the other hand, Sichuan Energy's photovoltaic business also showed growth. In the first quarter of 2025, the power generation capacity of the holding photovoltaic enterprises will reach 54 million kWh, a year-on-year increase of 74.19%. Although this sector has not yet become the main profit body, it shows good growth potential. On the basis of Sichuan Energy's "water and light complementation" resource structure, the company has the natural endowment to expand its green power business.

In terms of water resources, Sichuan Investment Energy is backed by the advantages of hydropower resources in the Yalong River basin and the upper reaches of the Yangtze River. According to relevant estimates, Yalong River Hydropower will complete power generation of 22.230 billion kWh in the first quarter of 2025, a year-on-year increase of 13.2%; The power generation capacity of the Yangtze River reached 57.772 billion kWh, a year-on-year increase of 9.5%. By the end of March 2025, the storage capacity of the Yalong River and Yangtze River basins will be 10.38 billion kWh and 18.77 billion kWh respectively, an increase of 2.875 billion kWh and 4.048 billion kWh year-on-year, indicating that the follow-up power generation potential is still sufficient. High levels of energy storage provide support for hydropower to continue to release electricity in the second and third quarters.

In addition, from the perspective of valuation and dividends, Sichuan Investment Energy has certain "income-oriented" allocation attributes. According to the announcements over the years, the dividend ratio is stable at more than 50%, and the total dividend payout in 2023 is 1.79 billion yuan, corresponding to a dividend yield of more than 3%. In the context of the current low interest rate environment and the preference for certainty of funds, the dividend policy of Sichuan Investment Energy has become an important guarantee for the lower limit of its valuation. Industry leader Yangtze Power (600900.HK) SH) current dividend yield is 3.2%, and the historical range is usually 3.5%~3.7%. Under the expectation of valuation repair, Sichuan Investment Energy's "bond-like stock" attribute may be further enhanced.

It is worth noting that Sichuan Energy Development Group has Sichuan Investment Energy, Sichuan Energy Power (000155. SZ), Huahai Qingke (688120. SH) three A-share listing platforms, representing three major business directions: hydropower, new energy and advanced manufacturing. This group-platform structure is conducive to resource scheduling and industrial synergy, and if the group promotes asset injection or strategic synergy of listed companies in the future, it is expected to bring epitaxial growth opportunities.

Although there is no specific asset injection arrangement in the short term, from the perspective of the evolution of the path of mergers and acquisitions, the central and local state-owned assets are exploring more flexible capital integration methods. As an important part of the integration of state-owned enterprises, Sichuan Investment Energy is expected to benefit from the future capital operation and industrial adjustment of Sichuan Energy Development Group.