The company achieved net profit of 1.14 billion yuan in the first three quarters of 2023, which was lower than expected. The main reason was that in 2023Q1-3, the general depletion of incoming water from watersheds such as the Hongshui River, where the company controls hydropower, dragged down electricity performance. A 45.8% year-on-year decrease in hydropower generation capacity led to a decline in revenue performance; as coal prices fell in Q3, we speculated that the company's thermal power sector profit improved slightly. The company's green power sector is developing steadily. From 2023Q to 3, the year-on-year increase in wind power generation contributed to the increase in performance. In the future, it is expected that the abundant cash flow provided by hydropower and watershed landscape resources will accelerate the development of the green power sector, bringing flexibility to the company's performance and cash flow. We expect the company's EPS from 2023 to 2025 to be 0.19/0.40/0.40 yuan, respectively, and the target price is 6.70 yuan, maintaining the “buy” rating.

Net profit for the first three quarters was 1.14 billion yuan, and the performance fell short of expectations. 23Q1-3 The company achieved operating income of 6.10 billion yuan, a year-on-year decrease of 29.3%; net profit of 1.14 billion yuan, a year-on-year decrease of 64.7%; converted to an EPS of 0.14 yuan, a year-on-year decrease of 65.9%; performance fell short of expectations. On a quarterly basis, 23Q3 achieved operating income of 1.94 billion yuan, a year-on-year decrease of 35.2%; net profit of 220 million yuan, a year-on-year decrease of 83.0%; and converted EPS of 0.03 yuan, a year-on-year decrease of 84.4%.

The sharp decline in incoming water is dragging down the company's performance, and thermal power profits may improve slightly. According to the company announcement, in 2023Q1-3, incoming water from the watershed where the company controls hydropower is drastically reduced. Among them, the incoming water from the watershed where the core Hongshui River cascade power station is located is 40% to 50% weaker than the average for many years, and the power generation capacity of the Longtan/Yantan power station decreased 57%/53% year on year to 54.5/2.88 billion kilowatt-hours, resulting in a 45.8% year-on-year decrease in the company's cumulative hydropower generation in the first three quarters to 16.68 billion kilowatt-hours. This is the main reason for the year-on-year decline in the company's revenue performance. In terms of thermal power, coal prices in the thermal coal market declined year-on-year from 2023Q1-3. According to Wind data, the average price of 5,500 kcal thermal coal in Qingang fell 20% year on year. It is expected that the company's thermal power sector will benefit from a reduction in fuel costs and promote a slight improvement in thermal power profits.

Continue to promote the development of the landscape sector and create a second growth curve to broaden development space. The company has accelerated the expansion of installed capacity through acquisitions and self-construction. According to the company announcement, by the end of 2023Q3, the installed capacity of wind power/photovoltaics reached 76.6/365,000 kilowatts respectively, a total year-on-year increase of 15%, driving a total year-on-year increase of 15%, driving a total year-on-year increase of 22% to 17.2% in 2023Q1-3, contributing to a certain increase in the company's revenue performance. Currently, the company has sufficient capital and a low balance ratio. It is expected that in the future, the company will rely on various channels such as the Hongshui River Basin's multi-energy complementary base to obtain high-quality landscape resources and accelerate the growth of the green power sector, bringing flexibility to the company's performance and cash flow.

Risk factors: the company's incoming water and power generation are lower than expected; the company's feed-in tariffs are lower than expected; the return on the company's new landscape projects falls short of expectations.

Profit forecast, valuation and rating: Considering that the 23Q3 company's incoming demand fell short of expectations, we lowered our electricity consumption assumptions and adjusted the company's net profit forecast for 2023 to 1.51 billion yuan (previous forecast value of 2 billion yuan), maintaining the company's 2024-2025 net profit forecast of 3.15 billion/3.15 billion yuan respectively, corresponding to the company's 2024-2025 EPS forecast of 0.19/0.40/0.40 yuan (original forecast was 0.25/0.40/0.40 yuan), corresponding to the company's current stock price PE from 2023 to 2025 was 30/14/14 times, respectively. Based on the company's historical PB average for the past five years, we gave the company a target PB of 2.8 times in 2023, corresponding to the target price of 6.70 yuan, maintaining the “buy” rating.