On November 29, Yuanda Environmental Protection reached its upper trading limit, indicating a surge in market enthusiasm surrounding the company. This spike came amid ongoing discussions about a backdoor listing of China Power Investment Corporation’s hydropower assets on the A-share market, a move that has been likened to a "snake swallowing an elephant." However, the merger and acquisition process remains in its infancy, with asset valuations and transaction prices yet to be decided, contingent on various approvals and conditions.

Today's performance meeting for Yuanda Environmental Protection (600292.SH), which had previously seen an astronomical rise with twelve consecutive trading limits, highlighted the company’s plans amidst inquiries regarding the merger's progression. The company’s representative for securities affairs, Deng Lichun, stated: “The major asset restructuring work is progressing as per the work plan. Currently, the focus is on confirming the scope of the acquisition assets and conducting required audits and evaluations.”

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Amidst circulating rumors suggesting that the company aims to double its installed capacity within three years to become the world's largest comprehensive clean energy public company, Yuanda Environmental's board secretary, Ling Juan, clarified that this restructuring goal had not been officially communicated.

When observing the company's operational performance in the first three quarters of the year, changes were relatively minor. The overall gross profit margin experienced a slight decline, with sales gross margin dropping by 1.24% year-on-year—a trend noted over the past years. The company reported revenues totaling 3.096 billion yuan, reflecting a 6.69% increase year-on-year, while net profit attributable to shareholders recorded 88.37 million yuan, a decrease of 0.34% compared to the previous year.

Since Yuanda Environmental publicly announced its restructuring in October, prominent speculative trading positions from major investors, including Donghai Qianhai and Shanghai Liyang Road, saw sustained interest as they continuously pushed the stock up. As November progressed, other active trading positions from Ningbo Sangtian Road and Guotou Securities took over, leading Yuanda Environmental to reach a historic high of 53.3 yuan, causing significant market fluctuations.

It is noteworthy that even with the stock price having doubled, the substantial scale of the hydropower assets from China Power Investment implies that Yuanda Environmental may still be undervalued. The company plans to acquire 100% equity of Wuling Power, which is owned by China Power and Hunan Investment International, as well as 64.93% equity of Changzhou Hydropower held by the Guangxi Company, primarily funded through a combination of cash and share issuance to no more than 35 qualified investors.

The planned issuance price for the new shares is set at 6.55 yuan per share, which reflects a 20.85% premium over the last trading day's closing price of 5.42 yuan before the stock suspension. The total amount to be raised through this issuance will not exceed 100% of the transaction price for purchasing these assets via shares, and the number of shares issued will be capped at 30% of the total shares post-transaction. Calculations suggest that given the current total share capital of 781 million shares, the upper limit for the new shares could reach 234.3 million.

According to the announcement, Wuling Power's projected revenues for 2023 and the first half of 2024 are estimated at 4.472 billion yuan and 3.15 billion yuan, with net profits of -452 million yuan and 701 million yuan, respectively. Meanwhile, Changzhou Hydropower's revenues are expected to be 876 million yuan and 391 million yuan, with net profits of 264 million yuan and 175 million yuan for the same periods.

Upon the successful completion of the restructuring, Yuanda Environmental's annual profit figures could surpass 1 billion yuan, approximating 22 times the earnings for 2023. This move is seen as part of a larger strategy by China Power International to further energize Yuanda's growth and market positioning.

In 2004, China Power International made significant strides by listing its main asset, China Power (02380.HK), on the Hong Kong Stock Exchange, becoming the first red-chip listed company among the original five major state-owned power generation groups. By 2006, China Power acquired a 25% stake in Shanghai Power, and in 2009, it secured 63% of Wuling Power, cementing its status as the independent power producer with the highest percentage of clean energy on the Hong Kong stock market.

In 2019, China Power International's subsidiary, China Power New Energy, was privatized and delisted; three years later, its assets were reorganized within China Power. By the end of 2022, the clean energy capacity of China Power International had reached 34.48 million kilowatts, constituting over 62% of the total installation capacity; within this, China Power accounted for 20.519 million kilowatts of clean energy installations.

Wuling Power, the target of the restructuring, is a subsidiary in which China Power holds a 63% stake and primarily engages in the development, investment, production, and supply of hydropower, wind power, and other clean energy projects in regions including Hunan, Guizhou, Sichuan, and Xinjiang. Changzhou Hydropower, in which China Power possesses a 64.93% stake, similarly focuses on hydropower, wind power, and solar energy developments, particularly in Guangxi.

Post-restructuring, Yuanda Environmental is set to evolve into a platform for consolidating hydropower assets for China Power Investment within China, while China Power, through its controlling stake in Yuanda Environmental, is strategically positioning itself as a flagship direction for comprehensive clean energy initiatives.

Moreover, certain securities institutions have reported that the asset restructuring planned by the State Power Investment Corporation can be viewed as a “return to the A-share market” for China Power’s hydropower assets, with management confirming that wind and solar assets will remain under China Power, continuing the overall plan to re-enter the domestic A-share market.