Incident: 1) The company released its three-quarter report for 2023. The company achieved revenue of 1,046 billion yuan in the first three quarters, a year-on-year increase of 19.44% before adjustment, and 3.43% year-on-year increase; net profit to mother of 202 million yuan in the first three quarters, a year-on-year increase of 56.98% before adjustment, and 6.62% year-on-year increase after adjustment; achieved net profit of 47 million yuan in the third quarter, down 18.38% year on year before adjustment, lower than our expectations. The year-on-year difference before and after the performance adjustment was mainly due to the company's acquisition of a 200,000 kilowatt wind power project in the first half of this year (under the same controller). 2) The company issued the 5th board resolution announcement of the 9th session to establish four branches to expand the distributed photovoltaic business.

Poor wind conditions were compounded by major and minor modifications, and the results for the third quarter of the single quarter were lower than the same period. Since the company did not disclose electricity data, referring to the September electricity announcements disclosed by Longyuan Electric Power and Datang New Energy, it can be seen that the wind conditions in Ningxia were poor in the third quarter, and wind power generation in the Ningxia region fell 6.7% and 10.2% year-on-year respectively in the third quarter. The company's revenue declined by 13.56% in the third quarter. In addition to the impact of wind conditions, it may be related to the shutdown of the company's old wind farms from generation to generation in the third quarter. According to the WeChat account of “Ningxia Silver Star Energy Co., Ltd.”, the first 18 850KW fans in the Helanshan Wind Farm 91.8MW technical transformation project were dismantled on August 18, 2023, and all 18 were removed on September 27. That is, from mid-August to the end of September, the company's 91.8MW wind power projects were shut down one after another, putting pressure on revenue and profits in the third quarter. On October 15, the first fan of the Silver Star Energy Helanshan Wind Farm Technical Transformation Project was successfully launched. According to the announcement, the internal rate of return (after tax) of the project after the renovation of the old wind farm is about 10%. We believe that although the company's short-term performance is affected by wind conditions and transformation, the old wind farm after renovation alone further highlights the advantages of wind resources, which is conducive to the company's long-term development.

A branch was established to expand the distributed photovoltaic business. The new energy platform within the group is clearly positioned and the business collaboration model is clear. The company issued the 5th board resolution announcement of the 9th session to establish four branches of Ningxia Yinxing Energy Co., Ltd., Lanping Branch, Zunyi Branch, and Fushun Branch in the Qujing Qilin District factory area of Yunnan Chihong Resources Comprehensive Utilization Co., Ltd., Shaoshang Tailings Depot in Lanping County, Yunnan Jinding Zinc Industry Co., Ltd., the Zunyi Bozhou District factory area of Zunyi Aluminum Co., Ltd., and the Fushun Branch in Wanghua District, Fushun City. According to the enterprise survey, the above four companies are all China Alcoa Group holding companies. Our analysis shows that this business collaboration clarifies the position of Silver Star Energy as the core platform for new energy within the group. In the future, the new energy projects within the group may be mainly carried out by the company; at the same time, the Group's main electrolytic aluminum business and Silver Star Energy's new energy operation collaboration model is gradually becoming clear, and the distributed photovoltaic spontaneous self-use model may be the first to run.

China Alcoa Group's only new energy listing platform. The source network load storage model solves the problem of new energy consumption. According to the company's announcement, Silver Star Energy is the only new energy listing platform under the China Alcoa Group. With the promotion of the dual-carbon strategy and the marketization of electricity, the China Alcoa Group faces the triple pressure of carbon reduction, cost reduction, and reliable electricity consumption. Since 2021, the country has issued several documents encouraging the integrated and collaborative development of source networks and cargo storage. We believe that at present, new energy operators in the northwest region face serious consumption problems, and source network load storage is a key concept under the new power system. On the one hand, in the context of the shift from dual control of energy consumption to dual carbon control, the western provinces rely on green power to develop high-energy release space; on the other hand, under the trend of carbon market expansion, electrolytic aluminum may be first included in the carbon market, and carbon emissions from direct green power supply are directly beneficial to the source network load storage and spontaneous use model. China Alcoa Group's development source network load storage has two major advantages: load side and land use side. As the only new energy listing platform under the China Alcoa Group, Silver Star Energy will fully benefit from the support of the China Alcoa Group.

Profit forecast and rating: Based on the company's business situation in the third quarter, we maintained the company's 2023-2025 net profit forecast of 3.01, 5.07, and 808 million yuan, respectively. The current stock price corresponds to PE of 18, 11, and 7 times, respectively. We believe that with the collaborative support of the Group's business, new energy projects are expected to accelerate development and maintain a “buy” rating.

Risk warning: The installed development of new energy has fallen short of expectations, and there have been adverse changes in the electricity price policy.