Harbin Electric (01133.HK), backed by state-owned assets, is one of China's largest manufacturers of power generation equipment and holds a significant position in the domestic energy industry.

The company's main products include coal power, nuclear power, hydropower, gas power main equipment, clean energy equipment, and marine power equipment, which are exported to over 50 countries and regions in Asia, Africa, Europe, and the Americas.

In terms of market position, Harbin Electric's coal power and nuclear power main equipment, as well as heavy-duty gas turbines, account for one-third of the domestic installed capacity, while large hydropower units account for half of the domestic installed capacity.

Recently, Harbin Electric released its semi-annual report, showing impressive growth in operating performance.

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This year, the domestic power installation has continued to be stable, with an additional 15.3 million kilowatts of power generation capacity added nationwide in the first half of the year, an increase of 18.78 million kilowatts year-on-year; the total installed capacity of power generation across the country was 30.7 billion kilowatts, a year-on-year increase of 14.1%.

In the first half of this year, Harbin Electric achieved operating income of 17.043 billion yuan, a year-on-year increase of 25.59%; it achieved a net profit attributable to the parent company of 523 million yuan, a significant year-on-year increase of 515.70%; the gross margin was 11.43%, an increase of 0.71 percentage points year-on-year.

However, the strong performance did not stimulate an increase in Harbin Electric's stock price.

Instead, the stock price plummeted the day after the performance was released (August 29), closing with a drop of more than 10%, and the stock price continued to decline afterward.

The strong profitability of Harbin Electric in the first half of the year was mainly driven by a significant reduction in asset impairment losses and an increase in investment income.

In the first half of the year, affected by a significant reduction in the impairment loss of contract assets, Harbin Electric's asset impairment loss was reduced from 220 million yuan in the same period of the previous year to just over 80 million yuan; investment income increased from just over 9.4 million yuan in the same period of the previous year to more than 65 million yuan.

Harbin Electric increased its capital investment, completing fixed asset investment of 653 million yuan in the first half of the year (compared to 467 million yuan in the same period of the previous year), mainly for the nuclear power industry layout capability guarantee project, pumped storage capacity enhancement project, national-level power generation equipment research center development base construction project, and technical measures and technical transformation investment carried out by affiliated companies to maintain normal production operations.

Last year, driven by a favorable overall environment, Harbin Electric's order growth was impressive, with a total contract signing amount of 43.565 billion yuan for the year, a year-on-year increase of 29.53%, of which coal power equipment was 13.973 billion yuan, a year-on-year increase of 101.66%.

However, the situation for coal power in the first half of this year was not as good as last year.

The "2024 First Half-Year Analysis of Low-Carbon Transition Progress in China's Power Sector" report shows that in the first half of this year, the total approved coal power installation was about 10.342 million kilowatts nationwide, a year-on-year decrease of about 79.5%, showing a trend of "slam on the brakes" for coal power approval.

In addition, the coal power installed capacity was 11.7 billion kilowatts in the first half of the year, a year-on-year increase of only 2.5%.

Due to the decline in order amounts in fields such as coal power, Harbin Electric's order situation in the first half of the year showed a negative growth, with a cumulative contract signing amount of 26.025 billion yuan, a year-on-year decrease of 20.13%, of which coal power equipment was 10.834 billion yuan, a year-on-year decrease of 6.85%, while hydropower and nuclear power both achieved double-digit growth.

In the first half of the year, Harbin Electric only saw an increase in order amounts in the new equipment segment, while the order amounts for green low-carbon drive equipment, engineering contracting and trade, and clean and efficient industrial systems all declined significantly, thus dragging down the overall growth of order amounts.

In the second half of the year, Harbin Electric's business expansion may see improvement.

According to the State Grid Energy Research Institute, it is expected that the thermal power installed capacity will be 14.5 billion kilowatts in 2024, a year-on-year increase of 4.3%, higher than the increase in the first half of this year.

Guoyuan Securities stated in its research report that in order to ensure that the demand for power supply is met and to strengthen the safety of the power system, the construction of coal power still needs to be guaranteed.

Zhongtai Securities' research report pointed out that the main position of coal power in power supply remains unchanged, and with the expansion of new energy installed capacity, the flexible adjustment function of coal power is particularly crucial.

It is expected that in the "14th Five-Year Plan" and for a longer period in the future, thermal power will continue to play an irreplaceable role in energy bottom-line protection and green low-carbon transformation.

In terms of hydropower, the "Pumped Storage Development Master Plan" plans to reach a pumped storage installation of 120 million kilowatts in China by 2030.

As one of the two state-owned large hydropower main equipment providers, Harbin Electric will benefit from the increase in related demand.

It is worth mentioning that as Harbin Electric's stock price continues to shrink, its cash on hand is far higher than its market value.

As of the close on September 12, Harbin Electric's market value has shrunk to 4.853 billion Hong Kong dollars, with a price-to-earnings ratio (TTM) of only 4.42 times.

However, the company has relatively ample cash on hand, with 16.337 billion yuan in monetary funds in the first half of the year, equivalent to about 17.9 billion Hong Kong dollars, which is about 13 billion Hong Kong dollars higher than its market value.