Earnings for the first half of 2023 fell short of market expectations, while profit before non-caliber taxes was still up 23% year over year. The company's profit for the first half of the year rose 1% year on year to 1.78 billion yuan (same below), falling short of market expectations of an increase of about 5%. We think market expectations are high, especially with regard to the company's operating expenses budget. The reason is that the company had a one-time project of 320 million yuan in the same period last year, including fan compensation and impairment reimbursement, but none occurred within the first half of this year, forming a high profit base for the first half of last year. Excluding one-time factors, corporate profit before tax was still up 22.9% year over year. During the period, the company's wind/photovoltaic power generation increased by 17%/62%, respectively, benefiting mainly from a 6%/44% year-on-year increase in wind/solar installations, and an 8.4%/14.5% improvement in utilization hours. The company added 141 megawatts of installed capacity in the first half of this year (significantly higher than 99 megawatts in the same period last year). In addition, the company received 230 million yuan in subsidy repayment in the first half of the year, and the balance of subsidy receivable in the first half of the year was 16.5 billion yuan.

There has been no substantial progress in the acquisition of the parent company's new energy assets. At the performance conference, the management did not set a clear goal for installing new equipment throughout the year. At the same time, it also denied that there would be substantial progress and intentions in the acquisition of new energy assets by the parent company. This seems to have changed compared to the company's previous direction. At the March earnings conference, the company proposed to study the integration of resources within the group. Of course, the company can still seek to acquire new energy assets from third parties, but in terms of sustainability, it is lower than the integration of internal resources. At the same time, the company's ability to integrate resources within the group will highlight the company's superior position in the development of new energy within the group. However, at present, these assumptions have not been proven.

New installations and profit forecasts have been lowered, and valuation increases need a new catalyst. Since the company's stance on the acquisition of new energy projects is still unclear, we lowered the company's additional installed capacity to 1.5/2.2/3.0 GW at the end of 23-25 (the original forecast was 2.9/4.0/5.0 GW). At the same time, the company's earnings forecast per share was lowered by 6%/16%/25% to reflect the relatively conservative development rate of the overall new installed capacity. The compounded profit growth rate of the company in 23-25 was 7%. At the same time, we lowered the valuation standard to 6 times the 2023 price-earnings ratio (originally 8 times), which is a five-year historical average. This mainly reflects the fact that the assumption that the above companies will integrate the parent company's new energy assets is not valid yet. We lowered our target price to HK$2.25 (originally HK$3.52), which is a limited potential increase from the current price. We believe that the market still needs to wait for a new catalyst to appear before it can be expected to usher in more room for valuation increases and downgrade the rating to neutral.