In the third quarter, operating income decreased year-on-year, and net profit attributable to parent increased significantly. In the first three quarters of 2023, the company realized revenue of 14.436 billion yuan (-12.16%), net profit of parent company of 1.718 billion yuan (-6.47%), and net profit deducted from non-parent company of 1.686 billion yuan (+1.48%). Among them, the single-quarter revenue in the third quarter was 5.346 billion yuan (-7.95%), the net profit attributable to the parent was 816 million yuan (+108.04%), and the net profit deducted from non-parent was 820 million yuan (+108.69%). The reasons for the decrease of operating income of the Company in the first three quarters are as follows: firstly, the coal trade income decreased year-on-year due to the large decrease of coal sales unit price; secondly, although the incoming water in the area where the main hydropower stations of the Company are located in the third quarter far exceeded the level of the same period last year, the hydropower generation volume decreased year-on-year in the first three quarters due to the low water adjustment level at the beginning of this year and the low incoming water in the first half of the year, and the operating income of hydropower business decreased year-on-year; Third, due to the decrease in natural gas sales volume, the operating income of the Company's natural gas business decreased year-on-year. During the same period, although profit of coal power segment and new energy power generation segment increased year-on-year due to year-on-year decrease of fuel cost and increase of installed capacity of new energy, overall power generation volume decreased year-on-year in the first three quarters due to low water level adjustment at the beginning of the year and partial dryness of water supply in the first half of the year, and net profit attributable to parent decreased year-on-year.

The incoming water situation of Qingjiang River Basin continues to improve, and the profitability of hydropower business is expected to be further restored. Since the third quarter, the incoming water situation of Qingjiang River Basin has improved. The water level of Shuibuya Reservoir of the Company continues to rise. At present, the water level and water storage capacity of Shuibuya Reservoir are at a relatively high level. According to the data of National Water and Rain Information Network, as of October 29,2023, the water level of Shuibuya Reservoir is 397.318m, and the water storage capacity is 4.149 billion cubic meters. It is expected that with the improvement of water inflow in Qingjiang River Basin, the profit of hydropower business of the Company will continue to grow in the second half of 2023, which will further improve the overall performance of the Company.

The construction of new energy projects continues to be promoted, and convertible bonds are issued to raise funds to ensure the landing of new energy projects. Since 2023, the company has announced the investment in the construction of a number of new energy projects, with a total installed capacity of more than 2GW. The issuance of convertible bonds of the Company continued to be promoted, and the total amount of funds raised by the proposed issuance of convertible bonds shall not exceed RMB 6 billion Yuan. The raised funds shall be mainly invested in 8 Fengguang New Energy Projects, Hubei Luotian Pingyuan Pumped Storage Power Station Project and supplementary working capital. With the completion of the issuance of convertible bonds in the future, the capital strength of the Company will be further strengthened, and the new energy projects of the Company will be gradually implemented, driving the continuous growth of the Company's performance.

Risk hints: water inflow is not as expected; coal prices are rising; electricity prices are falling; industry policies are not as expected.

Investment suggestion: Maintain profit forecast. It is estimated that the net profit of parent company from 2023 to 2025 will be 21.33/25.26/28.17 billion yuan respectively, with a year-on-year growth rate of 83.5%/18.4%/11.5%; EPS from 2023 to 2025 will be 0.33/0.39/0.43 yuan respectively, and PE corresponding to current stock price will be 13.1/11.0/9.9x respectively. Give 15-16 times PE in 2023, corresponding to the equity value of the company of 32 - 34.1 billion yuan, corresponding to a reasonable price of 4.91-5.23 yuan/share, with a premium of 15-23% compared with the current share price. Maintain a "Buy" rating.