Key investment points: Power distribution and energy saving platforms under the State Grid. Fuling Electric Power is mainly engaged in power distribution in Fuling District and power grid energy saving business in the State Grid region. As of the end of 2019, Chongqing Chuandong Electric Power, a wholly-owned subsidiary of the State Grid, held 51.64% of the shares. In 2019, the company achieved revenue of 2,622 billion yuan, +7% year-on-year; net profit of 397 million yuan, +14% year-on-year. As a listing platform for power distribution and energy saving under the State Grid, the company has an unparalleled competitive advantage. Electricity sales volume in the power distribution business is stable, but electricity sales prices are low. The company's distribution grid mainly serves Fuling District. The local economy is well developed and electricity sales volume is stable. In 2019, the company achieved sales volume of 2.8 billion kilowatts of electricity, +1% over the same period last year. However, the selling price of electricity is low, and the profit of power distribution units is also low. In 2019, the electricity sales price of Fuling Electric Power was 0.47 yuan/kilowatt hour, and the unit gross profit was only 0.02 yuan/kilowatt hour, lower than that of Three Gorges Water Resources (price of 0.5 yuan/degree and gross profit of 0.07 yuan/degree). The energy saving business grew rapidly, enhancing the company's overall profitability. In 2016, Fuling Electric Power purchased 14 power grid energy saving projects from the State Grid. In 2019, this business achieved revenue of 1.25 billion yuan, +17% over the same period; we estimate net profit of 340 million yuan, +32% over the same period, mainly due to the commissioning of new projects and an increase in gross margin. The company's power grid energy saving mainly uses a contract energy management model. The contract period is 5-8 years. During the project period, the company can usually share 80-100% of the energy saving benefits. The company's revenue = benefit sharing ratio, electricity savings, electricity price; after the contract is over, ownership of the energy-saving equipment is handed over to the customer free of charge. According to the typical projects disclosed in the company's 2016 acquisition report, the company's energy saving business net interest rate reached 10%-25%, electricity revenue 0.36-0.60 yuan/degree, and electricity profit 0.06-0.13 yuan/degree. The anticipated injection of energy-saving assets into the State Grid distribution grid is expected to open up room for growth. In April 2020, the company announced that it intended to raise capital to acquire the energy-saving assets of the distribution grid of the integrated energy service company under the State Grid and supplement the working capital. The State Grid loses more than 240 billion kilowatts of electricity every year. According to the experience that medium and low distribution grids account for 50% of grid loss, and energy saving of distribution grids can save 30% of line losses, the full transformation of the State Grid regional distribution grid can save 36 billion kilowatts of electricity per year. It is conservatively assumed that Fuling Electric Power undertakes 30%-50% of these projects, minus the 2.3 billion kilowatt/year power savings of Fuling Electric Power's ongoing projects in 2019 and 280 million dW/yr of contracted projects, the remaining incremental market is 82-15.4 billion dW/year, or 3.6-6.7 times more room for growth. According to the average net profit per unit of 0.1 yuan/kilowatt hour of typical energy saving projects disclosed in 2016, the long-term power grid energy saving business is expected to increase net profit by 82-1.54 billion yuan, while in 2019, the company's total net profit was 397 million yuan. Earnings forecasts and valuations. We expect the company to achieve net profit of 4.29, 4.61, and 496 million yuan per share in 2020-22, corresponding to EPS of 0.98, 1.05, and 1.13 yuan/share. Referring to comparable company valuations and considering the company's unique advantages as the only power distribution and energy saving business platform under the State Grid, the company was given 20-25 times PE in 2020, corresponding to a reasonable value range of 19.6-24.5 yuan/share, and for the first time, coverage was superior to the market rating. Risk warning. (1) Distribution grid energy saving business has a high concentration of customers and a high degree of dependence on the State Grid. (2) Competition in the integrated energy service sector is intensifying, and the company's gross margin is likely to decline. (3) Uncertainty about asset injection plans.