Incident: The company released its report for the third quarter of 2016. In the first three quarters of 2016, the company achieved operating income of 1,570 billion yuan, a year-on-year decrease of 16.74%; net profit of 393 million yuan, a year-on-year decrease of 9.76%; and achieved earnings per share of 0.40 yuan, a year-on-year decrease of 40.19%. Comment: 1. The company's revenue for the first three quarters of 2016 fell 16.74% year on year, and attributable net profit fell 9.76% year on year. In the first three quarters of 2016, the company achieved operating income of 1,570 million yuan, down 16.74% year on year; operating costs of 982 million yuan, down 18.74% year on year; owned net profit of 393 million yuan, down 9.76% year on year; basic earnings per share were 0.40 yuan/share, down 40.19% year on year. The main reason for the decline in operating income and operating costs is the reduction in feed-in electricity volume and feed-in tariffs for thermal power plants. The main reason for the decline in basic earnings per share was the increase in total share capital after the fixed increase. 2. Analysis of influencing factors: Gross profit, financial expenses, and net investment income have a large impact. We analyzed the influencing factors of Ganneng's performance sources in the first three quarters. The calculation formula for influencing factors is the project difference for the same period divided by the net profit margin attributable for the same period. The factors that had a large impact on Ganneng's profit in the first three quarters were gross profit, financial expenses, and net investment income. Among them, the factors that had the greatest influence on gross profit were gross profit. 3. The decline in thermal power feed-in electricity volume and the reduction in electricity prices are the main reasons for the decline in gross profit. Currently, the company's main business is thermal power and hydroelectric power generation. Currently, the company has put into operation one thermal power plant and two hydropower plants, with a total installed capacity of 1.5 million kilowatts. The Fengcheng Phase II thermal power plant belonging to the company has an installed capacity of 2 x 700,000 kilowatts and is located in Fengcheng City, Jiangxi Province. The two hydropower plants, the Jurongtan Hydropower Plant and the Baozishi Hydropower Plant, have an installed capacity of 2 x 30,000 kilowatts and 2 x 20,000 kilowatts, respectively. They are located in Ganzhou City, Jiangxi Province and Xiushui County, Jiujiang City, respectively. The company still has the Fengcheng Phase III power plant under construction. The design has an ultra-supercritical generator set with an installed capacity of 2 x 1 million kilowatts. In addition, the company's controlling shareholder, Jiangtou Group, is under the jurisdiction of Jiangxi Dongjin Power Generation Co., Ltd., with an installed capacity of 2 x 30,000 kilowatts. However, in January 2016, the country lowered the feed-in tariff once again. The feed-in tariff for Fengdian Phase II of the company's thermal power plant was adjusted to 0.3993 yuan/kilowatt-hour (including desulfurization and denitrification, tax and dust removal). The feed-in tariff for the company's hydropower plant was not adjusted. It was 0.42 yuan/kilowatt-hour (tax included), and the reduction in the feed-in tariff for thermal power generation reduced the company's main business revenue. At the same time, the company's feed-in power is also declining. In the three-quarter report, the company did not announce the cumulative amount of feed-in power, but in the semi-annual report, we can see that in the first half of 2016, the company completed a total of 2,676 billion kilowatt-hours of feed-in electricity, a decrease of 12.63% over the previous year. Thermal power accounts for a relatively high share of the installed capacity of Ganneng Co., Ltd., while the feed-in electricity volume and feed-in price of thermal power both showed a downward trend. In the second half of the year, as the cost of raw materials for thermal power, that is, the price of coal, continued to rise, gross profit will continue to decline year-on-year. 4. Financial expenses were drastically reduced and net profit was reduced, and the reduction in investment income had a certain adverse effect: due to China's repeated lowering of the benchmark interest rate in 2015, the company's balance ratio was reduced to 36.49%, reducing interest expenses. At the same time, fixed capital raised increased interest income. Therefore, in the first three quarters of 2016, the company incurred financial expenses of 73 million yuan, a decrease of 68 million yuan compared with the same period last year, a year-on-year decrease of 48.50%, which largely hedged the decline in attributable net profit. Among them, the reduction in the balance ratio was due to the reduction in the company's loan stock after a fixed increase in capital to repay the bank loan, which effectively improved the company's resilience to risk and financing capacity. The changes in the company's balance ratio are shown in the following table. In addition, the company's investment income for the first three quarters was 47 million yuan, a year-on-year decrease of 38.14%. The main reason was that no income from the transfer of marketable financial assets was realized during the year, which also had a certain adverse impact on the net profit attributable. 5. Fixed capital increases to accelerate the development of high-quality projects and enhance the company's profitability: During the reporting period, the company completed the 2015 non-public offering of shares. The company privately issued 329 million RMB common shares (A shares) to SDIC Power, with an issue price of 6.56 yuan per share. The total amount of capital raised was 2,158 billion yuan, and the net capital raised was 2.51 billion yuan. On February 3, 2016, the shares subscribed to by the issuer were listed on the Shenzhen Stock Exchange. The stock sale period is 36 months, and the expected circulation period is February 4, 2019. After deducting issuance fees, the raised capital was used to repay bank loans, and all remaining funds were used for the Fengcheng Power Plant Phase III expansion project. After the third phase of the Fengcheng Power Plant expansion project is put into operation, the estimated annual power generation capacity is 10 billion kilowatt-hours, electricity sales revenue of 3.74 billion yuan, net profit of 664 million yuan, financial internal return after income tax is 8.62%, and the payback period is 11.76 years. Of these, net profit is 1.16 times the company's net profit in 2015, which will significantly increase the company's core business revenue and profitability. After the completion of the project, the company's installed capacity will grow from the current 1.5 million 10 million to 3.5 million kilowatts, with a growth rate of 133%, driving the company's performance to a new level. By the end of September 2016, the infrastructure project of the company's Fengdian Phase III project was progressing smoothly. Unit 7 steam engine base IV to VI shaft wall and condenser pool wall completed; unit 7 boiler two-layer steel frame inspection completed; unit 8 condensate pump pit, condenser pit foundation steel lashing and template installation completed; unit 8 steam engine foundation steel bars lashed and template installed 50%; unit 8 steam engine foundation wall column steel bars below 0m were completed, and 50% template was installed; concrete casting of channel channel for electric dust removal of unit 8 was completed; 40 tons of circulating water pipelines were installed, a total of 90% completed; 70 percent of the steel frame on the first floor of the unit 8 boiler Tons, 28% cumulatively completed. 6. State-owned enterprise reform increases development space and creates a power generation business platform in Jiangxi: After the completion of this round of fixed increases, SDIC Electric's shareholding ratio rose to 33.72%, making it the second largest shareholder of Ganneng Co., Ltd. The shareholding ratio of Jiangxi Investment Group, the controlling shareholder, fell to 38.73%, and the shareholding gap with SDIC Electric Power was only about 5%. This acquisition is SDIC Electric's first test of the equity investment model in central enterprise reform, with the intention of entering the Jiangxi electricity market through strategic alliances. Through this fixed increase, SDIC Electric Power changed project investment to equity investment, and entered Jiangxi in one fell swoop, in line with the comprehensive energy investment strategy. As far as SDIC Electric Power is concerned, after the current reform of the power system, the power generation business that was originally planned is facing a certain downward pressure on performance, and there is an urgent need to find new investment directions and investment models. The electricity gap in Jiangxi Province is expected to reach 10 million kilowatts in 2020, 24 million kilowatts in 2025, and 34 million kilowatts in 2030. At the same time, Jiangxi Province lacks clean energy resource endowments such as solar energy, wind energy, hydropower, etc., and the main way to solve the electricity gap is to build its own coal power. Jiangxi's electricity consumption space has a clear advantage in the country. As of September 2016, the electricity consumption growth rate in Jiangxi Province increased 9.69% year on year, better than the national average electricity consumption of 4.52%. The cumulative increase in thermal power generation in the province is 4.9%, better than the national average of 0.8%. The utilization time of thermal power is 3,358 hours, which is higher than the national average of 287 hours. It is currently an advantageous region with a low base and high growth rate. 7. The controlling shareholder intends to inject natural gas assets. SDIC Electric may continue to expand its shareholding ratio. The company suspended trading from the opening of the market on March 30, 2016, and resumed trading on April 28, 2016, mainly to plan major asset restructuring. This restructuring involves controlling shareholders. The target of the planned acquisition is 100% of the shares of Jiangxi Natural Gas (Gantou Gas Connect) Holding Co., Ltd. (hereinafter referred to as “Gantou Gas Connect”) held by the controlling shareholder Jiangtou Group. The main business scope of Gantou Gas Connect is: investment, construction, operation and management of natural gas projects; investment, development and utilization of compressed natural gas and liquefied natural gas; investment and management of natural gas filling stations; investment, development and utilization of new energy projects; and other natural gas related businesses such as construction, installation, construction and maintenance of natural gas projects. Since the proposed fund-raising project of Jiangxi Gas Connect and some production and construction land have not been approved, the company does not expect to be able to complete the work within the time specified by the suspension of trading, so plans for this restructuring were terminated. However, the controlling shareholder has shown a strong will to inject assets, and it is very likely that the restructuring will be initiated again after approval of the land used for future projects is ripe. As a region with a low base and high growth base, demand for natural gas in the province is growing rapidly. Since it involves supporting financing, the gas pipeline network expansion process will not be delayed any further. We believe that this injection is very likely to start again, and the expanded assets will also bring new performance growth points. At the same time, SDIC Electric Power may continue to increase its shareholding ratio and take the opportunity of subscribing to Ganneng shares. As the first batch of pilot units for state-owned enterprise reform, the China Development and Investment Corporation has already begun experiments on state-owned enterprise reform within the company. Joining Ganneng Shares has brought him new vitality while transforming his identity. 8. Provincial energy investment platforms are expected to enter the electricity sales, distribution network operation, and gas sector. The biggest highlight of this power system reform is in the field of electricity sales and distribution networks. As a local power company, especially the only listed electricity company in Jiangxi Province, there is a high probability that it will become a provincial electricity sales and distribution network operator in the future. At the same time, the company intends to acquire natural gas pipeline assets in Jiangxi Province, build a large energy platform, enter the field of integrated energy services, and have strong competitive advantages in government resources and the market. It is expected to grow into the largest comprehensive supplier of electricity and gas in Jiangxi Province. 9. Raise the rating to “Highly Recommended”. Taking into account the continuous downward trend in thermal power volume and price and the current situation where financial expenses are falling, the company's net profit in 2016 is estimated to be around 496 million yuan, and the share capital after the issuance is 976 million shares, corresponding to EPS of 0.51 yuan. In the future, the profit contributed by the commissioning of new thermal power plants is 664 million yuan. In addition to the current asset profitability of 496 million yuan, the corresponding EPS is 1.19 yuan. The estimated time to achieve this is about 2 years, and the certainty is strong. SDIC Electric Power is a pilot enterprise invested in state-owned enterprise reform. As its first project after becoming a pilot project, Ganneng will pay unconventional attention within the group. Subsequent asset and equity operations are worth anticipating. The current stock price is 9.36 yuan, and SDIC Electric's shareholding cost is 6.66 yuan. Assuming 5% capital cost per year during the three-year lockdown period, SDIC's actual cost per share is 7.66 yuan. After comprehensive consideration, the company's basic performance, state-owned enterprise reform, and power system reform expectations were initially given a target price of 12 yuan, corresponding to the current performance valuation 23 times, and 10 times the valuation after the new power plant was put into operation. Raised to “Highly Recommended” rating. 10. Risks suggest that electricity prices continue to fall, coal prices are rising, and the hourly decline in thermal power utilization exceeds expectations.