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Leshan Electric Power released its 2016 semi-annual report: during the reporting period, the company achieved operating income of 918 million yuan, an increase of 18.78% over the same period last year, and a net profit of 165 million yuan, an increase of 345.46% over the same period last year.

Event comment

The scope of the supply area has been expanded and the growth of electricity demand has boosted the company's operating income. In 2015, other shareholders of Qianwei County Zhengxin Investment Co., Ltd., which was originally a shareholder of the company, completed capital reduction (Sichuan Province Qianwei Asset Management Co., Ltd., Qianwei County Zixin Construction Investment Co., Ltd. And Qianwei County State-owned assets Supervision and Administration Commission). The company became a wholly-owned subsidiary of the company and was completed in May this year. Chuanwei Electric Power Co., Ltd. is a county-level local power supply enterprise integrating "generation, supply, use, construction and management". It undertakes the power supply task of more than 600 industrial enterprises and more than 160000 urban and rural residents in Qianwei County. this table enables the company to expand the power supply area. During the reporting period, due to the influence of government credit and table, the company completed electricity sales of 1.315 billion kilowatt-hours, an increase of 27.91% over the same period last year. Excluding the Chuanfeng electric power part, the company sold 1.111 billion kilowatt-hours of electricity, an increase of 8.09% over the same period last year, and the electricity demand in the company's traditional power supply area increased. The rise in electricity sales of the company led to an increase of 28.52% in power revenue compared with the same period last year, contributing to the growth of total revenue.

It is recognized that 120 million non-recurring gains, reduced losses on inferior assets and growth in the main business significantly boosted performance. In the first half of 2016, according to the relevant judgment and Ledian Tianwei bankruptcy ruling, the company reversed its estimated debt of about 37.07 million yuan, and won the case against Baoding Tianwei to confirm debt of 73.8 million yuan and interest, increasing the company's non-recurrent income by about 120 million yuan, helping the company improve its semi-annual performance. In addition, Mojiang Coal Power, a holding subsidiary, significantly reduced its losses compared with the same period last year due to the completion of personnel placement and the disposal of some assets (a loss of 25.7355 million yuan in the same period last year), and the negative impact of inferior assets gradually faded. After deducting non-recurrent profits and losses, the company realized a net profit of 44.8705 million yuan, an increase of 22.86% over the same period last year, mainly benefiting from a substantial increase in electricity sales and spontaneous electricity.

The abundant water supply is expected to be verified, and the power supply cost structure has been greatly optimized. In the first half of 2016, due to the abundant water from the river basin where the subordinate power station is located and the influence of the current government letter, the company achieved a power generation of 276.31 million kilowatt-hours, an increase of 69.58% over the same period last year. Excluding Chuanfeng electric power, the company achieved 243.65 million kilowatt-hours of electricity generation, an increase of 49.54% over the same period last year, partly verifying the abundant water forecast this year. As the wholesale electricity price at the county level of Sichuan Electric Power Company is 0.3336-0.5839 yuan / kWh (the general industrial, commercial and chemical fertilizer consumption has been reduced by 0.87min / kWh since June 1), which is much higher than the company's small hydropower generation cost, the abundant water supply has greatly optimized the company's power supply cost structure. Coupled with the increase in power supply business sales compared with the same period last year, the company is expected to effectively alleviate the impact of the reduction of general industrial and commercial electricity prices and the cancellation of high and low electricity prices on the sales side.

We will actively promote the integration of excellent assets and expand the scope of our main business, and join hands with Apple Inc to open up the development prospects of new energy business. In terms of its main business, the company completed the consolidation of the political credit this year, and Hongya Huaxi Power Co., Ltd., a wholly-owned subsidiary, completed the acquisition of power assets in the southern mountain area of Hongya last year, realizing the expansion of its own hydropower stations, grid-connected hydropower stations and power supply areas, and the equity acquisition of Dadu River Power Company, which was entrusted to the company in 2012, is also accelerating. Dadian has five power stations with a total installed capacity of 108500 kilowatts and a network of 306100 kilowatts. The power supply network covers 19 townships in Ebian Yi Autonomous County. At that time, the company's main business is expected to expand again through Dadian. In addition, in April 2015, the company announced that Sichuan Shengtian New Energy plans to cooperate with Apple to operate Hongyuan Huanju and Ruoergai Huanju 40MW photovoltaic power station project, and the company indirectly holds a stake in 12.10% photovoltaic power station. According to the Central shares announcement, the two photovoltaic projects have all been connected to the grid, and the company is expected to achieve the sustainable development of new energy business in the future.

Investment advice and valuation: we maintain the company's profit forecast and expect the company to achieve EPS of 0.359 yuan, 0.246 yuan and 0.256 yuan in 2016-2018, corresponding to PE23.54 times, 34.39 times and 33.10 times, maintaining the company's "overweight" rating.

Risk hint: systemic risk, incoming water less than expected risk, project promotion less than expected risk