Matters: In the first three quarters of 2019, the company achieved operating income of 5.51 billion yuan, an increase of 16.5% over the previous year; incurred operating costs of 4.53 billion yuan, an increase of 7.5% over the previous year; and achieved operating profit of 7.2 billion yuan, an increase of 198.3% over the previous year. Net profit attributable to the parent company was 495 million yuan, up 191.7% year on year; EPS was 0.4465 yuan, up 0.2934 yuan over the same period last year. Comment: Increased electricity, lower coal prices, and VAT rates are the main reasons for improving the company's performance. In the first three quarters, the increase in the company's performance was mainly due to a sharp increase in electricity volume, a decrease in fuel costs, and a reduction in the value-added tax rate. The three items increased operating profit by about 480 million yuan. 1) Increased electricity contributed total profit of 240 million yuan: In the first three quarters of 2019, the company's cumulative feed-in electricity volume was 13.533 billion kilowatt-hours, a year-on-year increase of 1,845 million kilowatt-hours, an increase in operating income of 670 million yuan, and an increase in fuel costs of 430 million yuan. 2) The reduction in the value-added tax rate contributed 100 million yuan to total profit: On April 1, 2019, the VAT rate was lowered by 3 pct, and the company's electricity operating profit increased by 0.9 points/kilowatt-hour, driving an increase in operating profit of about 100 million yuan in the first half of the year. 3) The fall in coal prices contributed a total profit of 140 million yuan: In the first three quarters of 2019, the unit price of standard coal for the company's coal machine was about 739 yuan/ton, a decrease of 38 yuan/ton from last year, and fuel cost savings of about 140 million yuan compared to last year. High electricity consumption is compounded by the depletion of water, and excessive generation of thermal power. In the first three quarters of 2019, the company's power generation increased 15.7% year over year. Mainly due to: 1. The high demand for electricity in Hubei Province has increased. The electricity consumption growth rate in Hubei Province was 7.92%, which is higher than the national average of 3.52pct. In the first half of the year in Hubei Province, the cumulative value added growth rates of non-metallic mineral products, electrical equipment, general equipment, communication equipment, and high-energy manufacturing industries were 9.8%, 11.6%, 10.4%, 21.1%, and 8.5%, respectively, driving a 6.7% increase in electricity consumption in the secondary sector; 2. The main stream of the Yangtze River and the Qingjiang River, Han River and other basins in Hubei Province declined sharply, and hydropower output declined significantly. The electricity supply gap caused by the increase in electricity consumption and the decline in hydropower generation needs to be filled by thermal power. It is expected that coal prices will continue to fall, and there is room for game in Haoji Railway freight rates. In the first three quarters of 2019, the average price of electricity and coal in Hubei was 603 yuan/ton, a year-on-year decrease of -7.1%. From January to September, raw coal production was 2.74 billion tons, up 4.5% year on year; imported coal was 250 million tons, up 9.8% year on year; total thermal coal consumption increased 3.4% year on year, of which electricity coal consumption increased 2.8% year on year and thermal power generation increased 0.5% year on year. The growth rate of coal supply is greater than the growth rate of demand, supply and demand are easing, and it is expected that coal prices will continue to fall. The freight rate from the Haoji Railway to Hubei is 0.2024 yuan/ton/kilometer, which is 10% higher than expected. Downstream demand for Haoji Railway traffic has weakened. It is expected that the subsequent freight rate game will continue, and there is room for decline in freight rates. Profit forecast, valuation and investment rating: As electricity volume growth exceeded expectations and Haoji Railway pricing was higher, we adjusted the company to achieve net profit of 590 million yuan, 670 million yuan, and 880 million yuan (original forecast value of 570 million yuan, 890 million yuan, 1.03 billion yuan) in 2019-2021, with a year-on-year increase of 183.1%, 13.2%, 32.1%, corresponding to PE of 9.2, 8.1, and 6.2 times. Referring to the CS thermal power sector, the company's average PE value in 2019 was 12 times, giving the company 12 times in 19 years PE, with a corresponding target price of 7.46 yuan, maintains the “push” rating. Risk warning: coal prices have risen sharply; electricity prices have been lowered; and power generation has fallen short of expectations.