Incidents: The company released its 2023 three-quarter report. In the first three quarters, the company achieved operating income of 2.196 billion yuan, an increase of 2.95% over the previous year; realized net profit of 347 million yuan, a year-on-year decrease of 9.27%; and net profit after deduction of 347 million yuan, a year-on-year decrease of 9.31%. Q3 The company achieved operating income of 892 million yuan, an increase of 8.32% over the previous year, and realized net profit of 153 million yuan, a year-on-year decrease of 11.4%, in line with our expectations

Biomass projects are dragging down the company's profits. 2023Q3 achieved revenue of 2.196 billion yuan, of which industrial energy efficiency achieved 1.11 billion yuan, a year-on-year increase of 21.5%, and construction energy efficiency of 655 million yuan, an increase of 16.3% year-on-year. Both revenue accounted for more than 80%. It is estimated that mainly due to the increase in distributed photovoltaic installations and the energy-saving area of buildings, integrated energy achieved revenue of 290 million yuan, a year-on-year decrease of 39.9%. Among them, biomass Q3 achieved revenue of 130 million yuan, a year-on-year decline of 58.6%. The decline in biomass project profit was the main reason for the decline in the company's profit.

According to the company's announcement, the company is strategically adjusting and withdrawing from the biomass power generation business and has set up a special working group to strictly implement the “one plant, one policy” operation plan for biomass power plants and take multiple measures to promote the quality and efficiency of biomass projects. We believe this move is expected to improve the company's business structure and profit performance and achieve steady growth.

Distributed PV reserves are increasing quarterly to ensure steady growth in scale and profit this year and next two years. According to the company announcement, in 2022, the company has adopted decisions for distributed photovoltaic installations totaling 921,000 kilowatts, of which only 320,000 kilowatts were added in 2022, and the remaining 600,000 kilowatts are expected to be put into production in 2023. In the first three quarters of 2023, the company added 510,400 kilowatts of distributed photovoltaics to be carried out according to the decision. Among them, Q1/Q2/Q3 decided 13.9/14.8/2234 million kilowatts respectively, and the number of new decisions increased quarterly. Since the production cycle of distributed photovoltaics is 6-9 months, and the company added 255,000 kilowatts of distributed photovoltaics in the first half of 2023, it is estimated that the new operation in the second half of the year is expected to reach 34.5-484,000 kilowatts, and the rest is expected to be put into production one after another next year. Therefore, the company's existing reserve project will guarantee a steady increase in the company's installed capacity this year and next two years. In the current context of high distributed photovoltaic power prices and continued decline in module costs, the company's profit is expected to grow steadily.

Accelerate the transformation to a load aggregator, and the company's business development is expected to accelerate under the support of market-based mechanisms. The company has continued to mention the development strategy of transformational load aggregators in recent years. We believe that as a comprehensive energy service provider under South Grid, the company has clear shareholder support and extensive customer resources. Relying on existing users, the transformation load aggregator has a pioneering advantage. It is expected that the company is expected to gradually invest, build and operate load optimization and regulation facilities such as integrated energy stations for user-side storage to accelerate new business development. More importantly, in 2022, the company released the 14th Five-Year Plan, which proposes to build a “leading domestic and world-class integrated energy service enterprise”. The goal is that by 2025, the company's modern corporate governance mechanism will be fully established, market-based management mechanisms will be basically mature, and it will become the leading integrated energy service enterprise in China. Under this strategy, in June 2023, the company announced the 2023-2025 excess profit sharing incentive plan, and proposed that no more than 30% of the company's excess profit sharing amount should be assessed and excess profit shared separately for the company's management team and the management of the company's business units. We judge that with the support of a market-based mechanism, the company will be more motivated to expand distributed photovoltaic projects and develop load aggregators. According to the company's current development strategy, the company will successively withdraw from biomass projects, which have mainly dragged down profits, and will move into high-growth, high-valuation burdens into commercial business, which is expected to promote the steady development of the company's business and bring higher growth.

Profit forecast and valuation: We maintain the company's net profit of 5.7, 7.7, and 970 million yuan from 2023 to 2025. The PE corresponding to the current stock price is 36, 27, and 21 times, respectively. The company has obvious brand advantages in the South China Network region, remarkable shareholder advantages, strong ability to obtain projects, and continues to maintain a “buy” rating.

Risk warning: Distributed PV installation development is progressing less than expected