Investment income grew steadily, and net profit to mother increased 25% year-on-year in 2023. The company released its 2023 performance report. In 2023, it is expected to achieve operating income of 1,486 billion yuan (+4.61% YoY) and net profit of 4.403 billion yuan (YoY +25.26%). Of these, the company's Q4 is expected to achieve net profit of 562 million yuan (-5.8% YoY). The 23-year performance increase is mainly due to the increase in Yalong River's performance and the acquisition of 10% shares in the Dadu River. The decline in Q4 revenue performance is mainly due to water bias and the high dry electricity price base of the Yalong River during the same period in '22. The company will redeem the Sichuan Investment Convertible Bonds in advance.

Efforts are made to stabilize electricity at the mouth of the two rivers, and it is expected that the regulation effect will continue to be released. According to the Sichuan Hydrology website, the incoming water from the Yalong River was dry in 23Q4. The water in October-November was 21% lower than the previous year. The two estuaries were close to full capacity and output increased in December to ease the downward pressure on the Yalong River. We estimate that the electricity generated by the Yalong River remained flat in Q4; in August '22, the price of electricity sent from Jinguan to the Soviet Union increased by 18% year-on-year. Under a high base, electricity prices in the Yalong River rose 18% year on year. Looking ahead to 2024, the low base of electricity consumption in the past 23 years, and our estimate that energy storage in the Yalong River was 1.5 billion kilowatt-hours higher than the year before the end of the year, incoming water recovery+high energy storage is expected to drive an increase in power generation in the Yalong River. At the same time, we expect the regulation effects of the three major reservoirs to be further released after incoming water is restored.

The Yalong River promoted the integration of water, landscape and energy storage, and acquired a 10% stake in Guoneng Dadu River. According to the company's interim report, as of the end of June, the total number of hydropower installations under construction in the middle reaches of the Yalong River was 3.72 GW, with 1.2 GW savings at the mouth of the two rivers; GW of waste photovoltaics (1 GW) and Labashan wind power (0.26 GW) have already been put into operation, and the scenery under construction is 1.43 GW, and the water scenery will become the main performance growth point for the Yalong River. The company acquired a new 10% stake in Guoneng Dadu River, increasing its shareholding ratio to 20%. At the same time, several hydropower plants under construction in the Dadu River will be put into operation by the end of the 14th 5th year. Combined with wastewater treatment, the performance is more flexible.

Profit forecasting and investment advice. The company's net profit from 2023 to 2025 is estimated to be 44.0/51.1/5.57 billion yuan, respectively, and the PE corresponding to the latest closing price is 15.11/13.0/12.0 times, respectively. The regulation ability of the two estuaries is outstanding, and there is plenty of room for new energy sources to grow. Referring to peer valuation, the company was given 17 times PE in 24 years, corresponding to a reasonable value of 19.74 yuan/share, maintaining a “buy” rating.

Risk warning. Fluctuations in incoming water; feed-in tariff adjustment risks; fluctuations in investment returns, etc.