Main points of investment

Event description

The company disclosed its third quarterly report for 2016: in the first three quarters, the company achieved operating income of 634 million yuan, an increase of 4.99% over the same period last year, and a net profit of 44.1572 million yuan, down 8.67% from the same period last year.

Event comment

The growth of electricity demand in the first three quarters boosted the company's revenue, and the commissioning of the Tangniwan photovoltaic power station brought a new driving force for revenue growth. In the first three quarters of 2016, the company sold 1.421 billion kilowatt-hours of electricity, an increase of 3.65 percent over the same period last year. Of this total, electricity sales reached 739 million kilowatt-hours in the third quarter, down 1.49 percent from the same period last year. Although electricity sales declined slightly in the third quarter, the overall demand growth in the supply area in the first three quarters led to a year-on-year increase in revenue. In addition, the Tangniwan photovoltaic power station controlled by the company (with an installed capacity of 40,000 kilowatts and generating electricity on the national grid) was put into production at the end of last year, generating 41 million kilowatt-hours in the first three quarters, bringing new growth impetus to the company's revenue.

The increase in non-recurrent expenses restricts the company's performance, and the company's actual profitability continues to grow.

Although the gross profit margin of the company's main business increased in the first three quarters of 2016, sales expenses, administrative expenses, financial expenses and asset impairment losses increased by 7.85%, 29.01%, 138.07% and 649.78% year-on-year, totaling an absolute increase of 27.9022 million yuan, seriously affecting the company's performance.

Among them, management expenses and financial expenses changed greatly, which increased by 11.9409 million yuan and 13.7656 million yuan respectively compared with the same period last year. The management expenses were mainly affected by the withholding bonuses in the first half of 2015, resulting in a low base in the same period last year; the financial expenses were affected by the increase in interest on bank loans during the reporting period and the temporary liquidated damages invested by Sichuan Hydropower Investment and Management Group in the company's rural power network, resulting in a sharp increase over the same period last year. After deducting such non-recurring profits and losses, the company achieved a deduction of 47.6353 million yuan in non-recurrent performance, an increase of 4.62% over the same period last year, and the company's actual profitability maintained growth.

The restart of the construction of Muli Guzeng Power Station is expected to be accelerated, and the company's power supply cost structure is expected to be greatly optimized after it is put into production. In January 2015, the company filed a lawsuit against 8 supervision and construction companies on the issue of illegal bidding for Muli Guseng Power Station. In November 2015, through the mediation of the Sichuan Provincial higher people's Court, the company reached an agreement with three of the companies, and the problems left over from the history of bidding began to be solved positively.

On October 15, 2016, the company announced that it plans to invest 172.81 million yuan in Muli County State-owned assets Operation and Management Co., Ltd. and Liangshan State-owned Investment and Development Co., Ltd. to increase capital to Muli County Gu Zeng Hydropower Development Co., Ltd. in order to speed up the construction and development of Guzeng power station. The installed capacity of Gu Zeng Power Station is 172000 kilowatts, with 64% of the company's shareholding. its installed capacity is basically the same as the company's existing total hydropower installed capacity (1795 million kilowatts). After it is put into production, the company's spontaneous electricity production capacity is expected to double, reduce the company's dependence on external electricity, and greatly optimize the company's power supply cost structure, which is good for the company's performance growth.

Investment advice and valuation: we maintain the company's profit forecast and expect the company to achieve EPS0.226 yuan, 0.266 yuan and 0.287 yuan in 2016-2018, corresponding to PE48.53 times, 41.26 times and 38.23 times, and maintain the company's "overweight" rating.

Risk hint: systemic risk, electricity demand decline risk, project promotion is not as expected risk, "notice on matters related to the Adjustment of Sichuan Power Grid Peak and Valley Price Policy" implementation risk