Event description

Xichang Electric Power released its 2016 semi-annual report: during the reporting period, the company achieved operating income of 392 million yuan, an increase of 7.70% over the same period last year, and a net profit of 2.4707 million yuan, an increase of 978.46% over the same period last year.

Event comment

The growth of electricity demand in Liangshan Prefecture led to an increase in revenue from electricity sales, and the small performance base in the same period last year led to a large increase in the company's performance in the first half of the year. The company sold 682 million kilowatt-hours of electricity in the first half of 2016, an increase of 9.86 percent over the same period last year. The company's power supply customers are mainly residents and commercial customers. in the first half of the year, the electricity demand in the company's power supply area exceeded the national average, driving the company's electricity sales and operating income to rise. During the reporting period, the company's operating cost of power supply increased by only 1.49% compared with the same period last year, and the gross profit of the power supply business increased year-on-year, driving the overall operating gross profit margin up 4.73 percentage points year-on-year.

However, due to the partial withdrawal of the bonus in the first half of 2015, the company's management expenses were relatively small in the same period last year. During the reporting period, the company's management expenses increased by 39.47% compared with the same period last year, an absolute increase of 10.1308 million yuan. In addition, due to the increase in interest on bank loans in the first half of the year, and the temporary liquidated damages that Sichuan Hydropower Investment and Management Group invested in the company's rural power network "unified loan and return" funds, the company's financial expenses increased by 121.54% year-on-year, with an absolute increase of 8.1693 million yuan. As a result of the increase in the above expenses, the company's total operating cost increased by 7.32% compared with the same period last year, and the advantage of operating gross profit margin was diluted. During the reporting period, the main reason for the sharp increase in the company's performance compared with the same period last year was the small base of 229100 yuan in the same period last year.

The overhaul of the power station in April reduces the spontaneous power output, which verifies that Fengshui expects a better performance in the second half of the year. In terms of electricity generation, the company achieved 226 million kilowatt-hours of spontaneous electricity in the first half of the year, an increase of 2.45 percent over the same period last year. Of this total, electricity generation in the first quarter was about 136 million kilowatt hours, an increase of 35.73 percent over the same period last year, and that in the second quarter was about 89.7817 million kilowatt hours, a decrease of 25.33 percent over the same period last year. The main reason for the decrease in power generation in the second quarter is that due to better water supply in the first quarter, the company postponed the maintenance time of its subordinate power stations to April this year. The maintenance lasted about a month of overhaul, resulting in a reduction in the output of subordinate power stations in the second quarter. The power generation of the company's power stations increased sharply in the first quarter, and in the second quarter, about 75% of the power generation in the same period last year could still be completed under the premise of an one-month shutdown, which partly verified the expected abundant water supply this year. As the second half of the year officially enters the flood season, we can expect the company's power generation to increase significantly compared with last year, optimize power purchase costs and boost the company's annual profits.

The construction of Muli Guzeng power station is expected to restart, and the commissioning of photovoltaic power station will open a new profit growth point. In January 2015, the company appealed against the illegal bidding of Muli Guseng Power Station and filed a lawsuit against 8 supervision and construction units. In November 2015, regulated by the Sichuan Provincial higher people's Court, the company reached an agreement with three of the companies, the problems left over from the history of bidding began to be solved positively, and the construction is expected to restart. The installed capacity of Muli Guzeng Power Station is 172000 kilowatts, with 64% of the company's shareholding. its installed capacity is 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. In addition, the Tangniwan photovoltaic power station, which is 51% controlled by the company, was connected to the grid on December 31, 2015, and the generated electricity was sold to the State Grid Sichuan Electric Power Company. In the first half of 2016, the Tangniwan photovoltaic power station had an online capacity of 27.1744 million kilowatt-hours, bringing new profit growth for the company, and the company can be expected to make further progress in new energy power generation in the future.

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 PE41.24 times, 35.06,32.49 times, and maintain the company's "overweight" rating.

Risk hint: systemic risk, water fluctuation 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