Core views:

Incoming water was running out and price spreads narrowed down performance, and 23H1's net profit was -89% year-on-year. The company released its mid-year report on 23 H1, with operating income of 5.689 billion yuan (+9.1% year on year) and net profit attributable to income of 31 million yuan (-88.9%). The decline in performance was mainly due to: high gross margin fell by 7.2 pct to 7.5% due to a decline in self-generated power generation, an increase in external electricity purchase costs led to a decrease of 7.2 pct to 7.5%, and the company's power business achieved operating profit of 119 million yuan (-7.3.0 billion yuan compared to the same period last year); losses of joint ventures such as Tiantai Energy led to investment income of 115 million yuan (0.99 billion yuan in the same period last year); accrued credit impairment losses 75 million yuan; the decline in the gross margin of electrolytic manganese led to a loss of 40 million yuan in operating profit; the Wanzhou cogeneration project was put into operation, and the comprehensive energy business achieved an operating profit of 37 million yuan.

Since incoming water has dried up, the amount of electricity generated has declined, and demand has increased in sales volume. According to the company's operating announcement, the company's own hydropower installed 746,200 kilowatts, 2023H1 generated 856 million kilowatt-hours (-43.8%), and Chongqing/Yunnan each decreased by 43.6%/72.6% year on year, but thanks to increased customer electricity consumption, 23H1 sold 6.725 billion kilowatt-hours (+5.1% YoY), with an average sales price of 0.488 yuan/kilowatt-hour (+2.2% YoY). According to the company's financial report, the company plans to distribute and sell electricity to 200/80 billion kilowatt-hours for the end of the 14th Five-Year Plan and 24 billion kilowatt-hours of electricity for 23H1 contracts.

It has blossomed at multiple points, and the integrated energy service business is progressing steadily. According to the company's financial report, (1) the Wanzhou cogeneration project was put into operation, and the Chongqing Liangjiang Longxing Ganfeng Energy Station project obtained preliminary approval procedures and jointly established a clean energy company with Angang Steel Group; (2) 28 user-side energy storage projects have been built, with a total capacity of 50 MWH. Two independent energy storage projects have been connected to the network in early August, with a total installed capacity of 300 MW/600 MWH; (3) 27 electric heavy truck decision projects have been completed; (4) the 7.1 MW rooftop photovoltaic project was put into operation in the first half of the year, and the 36 MW agricultural photovoltaic project was completed Start EPC project procurement.

Profit forecasts and investment recommendations. The company's net profit from 23 to 25 is estimated to be 6.6/9.3/1.12 billion yuan, and the corresponding PE according to the latest closing price will be 23/17/14 times, respectively. It is expected that the volume of incoming water and electricity generation will improve, and integrated energy services will continue to advance. The company was given a 24-year PE valuation of 25 times, corresponding to a reasonable value of 12.20 yuan/share, and maintained a “buy” rating.

Risk warning. Incoming water has fluctuated; the price difference between electricity purchases and sales has narrowed; and progress in comprehensive energy services has fallen short of expectations.