Brief performance review

On August 24, 2023, the company disclosed its semi-annual report. In the first half of the year, it achieved revenue of 15.29 billion yuan, an increase of 2.5% over the previous year, and achieved net profit of 1.12 billion yuan, an increase of 37.7% over the previous year. Among them, Q2 achieved revenue of 8.10 billion yuan, an increase of 12.0% year on year, and net profit of 860 million yuan, a year-on-year increase of 90.8%.

Management analysis

The high growth in demand for electricity consumption in Jiangsu Q2 has driven a sharp rise in the volume and price of coal and electricity in the main industry. Jiangsu was greatly affected by the radiation of the Shanghai epidemic in '22. Electricity consumption growth in 2Q23 began to show high elasticity, with a year-on-year increase of 9.1%, higher than the national average growth rate of 2.7 pct. Affected by this, the company's total power generation capacity of 1H23 was 31.52 billion kilowatt-hours, of which the power generation of coal power units was 29.64 billion kilowatt-hours, up 7.7% year on year; among coal machines, the power generation capacity of units in Jiangsu Province was 18.87 billion kilowatt-hours, up 9.3% year on year; coal power generation in Shanxi Province was 10.77 billion kilowatt-hours, up 5.1% year on year. As of 1H23, the company's holdings have shipped 144.37 million kilowatts of thermal power, and no new installations were put into operation in the first half of the year. The increase in power generation was mainly driven by an increase in electricity demand. It is expected that it will contribute significant performance increases after Q3 of the 1 million kilowatt coal power project controlled by Sheyang Port is put into operation. Furthermore, the tight supply and demand pattern of electricity in Jiangsu provides strong support for electricity prices. The company's 1H23 average feed-in tariff was 0.466 yuan/kilowatt-hour, an increase of 1.9% over the previous year.

The center of coal prices has declined, and the cost pressure on the coal power business has improved markedly. Domestic coal production capacity increased and imported coal supply increased in '23. Against the backdrop of supply-side expansion, the central coal price level in the 1H23 market fell 30% to 800 yuan/ton. It is expected that coal prices will maintain a downward trend throughout the year, and the insurance and supply policy helped the company increase its share of coal by about 30pct to 80% in 23 years. Under marginal improvements in coal usage costs, the gross margin of the company's 1H23 power main business was 6.13%, an increase of 0.66 pct over the previous year. Furthermore, the company has developed an independent coal supply system. The thermal power business is deeply integrated with coal procurement and port logistics. The transformation of integrated energy service providers continues to facilitate cost control and steady growth in financial services, and maintains a stable “safety cushion” for profits. 1H23's financial sector achieved revenue of 1.75 billion yuan (financial enterprise statement reporting scale), up 22.5% year on year, and achieved total profit of 1.7 billion yuan, up 23.8% year on year, mainly driven by the year-on-year increase in equity investment income of the subsidiary Jiangsu Trust; Jiangsu Trust 1H23 focuses on the transformation directions of asset management, asset services and charitable trusts, and assists in issuing the country's first single interbank market industrial park type REITs. Standard investment, ABS, family trust and other businesses accelerate development.

Profit Forecasts, Valuations, and Ratings

Considering the decline in coal prices in '23 and the “14th Five-Year Plan” of new units being put into operation one after another, the rebound in the company's coal power business performance is expected to continue to be realized. We expect the company to achieve net profit of 24.6/34.7/4.04 billion yuan, EPS of 0.65/0.92/1.07 yuan respectively in 23-25, and PE valuations of 10.5/7.5/6.4 times, respectively, and maintain the “increase in holdings” rating of 10.5/7.5/6.4 times, respectively.

Risk warning

The progress of the new project fell short of expectations; the demand for thermal power in the province fell short of expectations; the signing and implementation of contracts by the Association of Coal Ministers fell short of expectations, and the decline in coal prices fell short of expectations; financial business profit stability was insufficient.