Key investment event description We have followed up on Leshan Electric Power recently. The main opinions are as follows: Incident review Since 2016, the company's hydropower generation has increased, and the cost structure is expected to be optimized. According to monitoring by the National Meteorological Center, the extreme El Niño phenomenon that occurred in 2014 officially ended in May of this year, and it is expected that heavy precipitation will continue for 3 to 6 months after the end. The El Niño phenomenon has caused heavy precipitation. The incoming volume of small hydropower within the company's network is expected to be abundant, and the power generation capacity is expected to increase further, optimize the company's electricity purchase structure, and reduce the cost of electricity purchase. In the first quarter of 2016, the power plants under the company achieved a power generation capacity of 96.97 million kilowatt-hours, an increase of 77.99% over the previous year; excluding the power generation of Chuanqian Electric Power acquired in 2015, the company achieved a power generation capacity of 79.05 million kilowatt-hours, an increase of 45.1% over the previous year. Divestment of poor quality assets and actively promote the integration of excellent assets to expand the scope of main business. On May 6, 2016, the company successfully auctioned off Ledian Tianwei's bankruptcy property with a bid price of about 188 million yuan. The Mojiang Coal and Power Company has also completed a policy shutdown. The auction will be carried out, and the divestment of poor quality assets less related to the main business will proceed smoothly. In terms of main business, the company completed the acquisition of Chuanqian Electric Power in 2015, and its wholly-owned subsidiary Hongya Huaxi Electric Power Co., Ltd. completed the acquisition of electricity assets in the southern mountainous area of Hongya, and achieved the expansion of its own hydropower plants, grid-connected hydropower plants, and power sales areas. The equity acquisition of Daduhe Electric Power Company, which was managed by the company in 2012, is also progressing at an accelerated pace. Dadian has 5 power stations with a total installed capacity of 108,500 kilowatts and a built-in network of 306,100 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 extended development. The water and gas supply business benefits from the advancement of urbanization in Leshan, and the company's state-owned background is conducive to competition in the gas market. The company's natural gas and water supply business mainly obtains revenue through “purchase and sale price differences” and installation services. Among them, the natural gas service area is mainly concentrated in Shizhong District and Wutongqiao District of Leshan City, while the water supply business is mainly concentrated in Shizhong District of Leshan City. The main users are all residential users. Since the Leshan Municipal Government proposed a development plan to build a “double hundred” metropolis during the “13th Five-Year Plan” period in 2011, the company's natural gas and water supply business has grown steadily along with economic development. Currently, with the emergence and development of other gas supply units, there is a situation of multiple gas supply in cross gas supply regions, and competition in the natural gas business is becoming more and more intense. Since the company has a state-owned background and has a certain advantage in terms of trust with the government and users, it is expected that it will continue to benefit from the advancement of urban development in Leshan in the future. Invest in new energy sources and join hands with Apple to open up new profit growth points. In April 2015, the company announced that the participating company, Sichuan Shengtian New Energy, plans to cooperate with Apple to jointly operate the 40MW photovoltaic power plant project of Hongyuan Huanju and Zuoergai Huanju. The company indirectly holds 12.10% of the shares in the photovoltaic power plants. According to the announcement from Zhonghuan Co., Ltd., the two photovoltaic projects have all been put into operation. It is expected that Shengtian New Energy will operate this year, which will open up a new profit growth point for the company at that time. Investment recommendations and valuation: The company's 2016-2018 EPS is expected to be 0.198, 0.212, and 0.217 respectively, covering the “increased holdings” rating for the first time.