Event Overview: On August 29, the company released its 2023 semi-annual report. During the reporting period, the company achieved operating income of 2,234 million yuan, a year-on-year decrease of 10.86%; net profit attributable to shareholders of listed companies was 298 million yuan, a year-on-year decrease of 57.05%; non-net profit attributable to shareholders of listed companies was 280 million yuan, a year-on-year decrease of 43.24%.

Hydropower is under pressure, and Q3 is expected to increase significantly: 1H23's total feed-in electricity volume was 913 million kilowatt-hours, a year-on-year decrease of 695 million kilowatt-hours, a year-on-year decrease of 43.2%. Among them, Q2 hydropower feed-in electricity decreased by 508 million kilowatt-hours to 488 million kilowatt-hours, a year-on-year decrease of 51.0%. The total installed capacity of the company's Beihai Hydropower and Huaguangtan Hydropower in Zhejiang was 689,000 kilowatts, accounting for 86.8% and 60.9% of the company's total hydropower installations in Zhejiang. 1H23 had a total profit of 42 million yuan, a year-on-year decrease of 221 million yuan, a decrease of 83.9%. In July and August, Zhejiang experienced several typhoons. Precipitation increased, and hydropower output is expected to increase significantly.

There is a high increase in wind and the future is promising: Q2's photovoltaic feed-in electricity volume was 832 million kilowatt-hours, up 6.4% year on year; wind power feed-in electricity was 781 million kilowatt-hours, down 0.6% year on year, including 426 million kilowatt-hours for land wind and 355 million kilowatt-hours for sea wind. After the fund-raising was completed, the Taizhou No. 1 300,000-kilowatt ocean wind project is progressing steadily. It is expected that power generation will be put into operation within the year, providing support for 24-year performance growth. In addition to other wind and light projects under construction, we expect the new installed capacity to reach 1 GW throughout the year.

Investment suggestions: As precipitation increases in Q3, hydropower output is expected to increase; additional wind and light installations are expected to help increase performance in '24. Considering electricity volume, electricity prices, and installation pace, and adjusting the company's profit forecast, the estimated 23/24/25 EPS is 0.32/0.45/0.59 yuan (considering a fixed increase for share capital adjustments, the previous value was 0.46/0.61/0.75 yuan), corresponding to the closing price PE on August 30, 32.2/22.8/17.6 times, respectively. Considering the company's new energy growth potential and hydropower performance flexibility, the company was given 35 times PE in 2023, corresponding to a target price of 11.20 yuan, and maintained a “careful recommendation” rating.

Risk warning: 1) Incoming water from the basin is running out; 2) falling demand suppresses electricity consumption; 3) Market transactions and electricity price fluctuations; 4) policy adjustments such as fiscal taxation.