The Zhitong Finance App learned that Tianfeng Securities released a research report saying that a good water storage situation will lay the foundation for power generation in the first half of 2024. At the same time, with the successive implementation of electricity prices traded in the recipient provinces in 2024, market concerns about fluctuations in electricity prices for hydropower transmission are expected to decrease. Volume and price are expected to provide good support for the implementation of hydropower performance in 2024. It is recommended to focus on Changjiang Electric Power (600900.SH), SDIC Power (600886.SH), Huaneng Hydropower (600025.SH), and Sichuan Investment Energy (). 600674.SH

Tianfeng Securities's views are as follows:

Hydropower sector 2023 review and 2024 outlook:

Sector performance review: In May-July and August-December 2023, the hydropower sector had significant excess earnings compared to the general market; water storage situation: The 2023 flood season ended, and the water storage situation was better than the same period last year. Outbound electricity prices: The 2024 annual transaction electricity prices in the recipient provinces have been implemented one after another, and the impact on the outbound electricity prices for hydropower is limited. According to estimates, the 2024 annual transaction price adjustment in Jiangsu will have an impact of about 160 million on the final profit of Yalong River Hydropower Company.

Long-term growth of hydropower: From depreciation and electricity prices to discussions

Depreciation: Depreciation due will bring continuous performance growth to hydropower in the medium to long term. The focus is on analyzing the depreciation rate of various hydropower companies' unit equipment due to maturity and the increase in performance due to maturity.

Changjiang Electric Power:

Three Gorges Power Station: 32 units were put into operation from 2003 to 2012. Currently, they have entered the depreciation maturity stage one after another. It is expected that all depreciation will expire before 2030;

Xiluodu and Xiangjiaba power plants: The units were put into operation one after another in 2012-2014, and are expected to enter the centralized depreciation period in 2030-2032;

Wudongde and Baihetan Power Stations: The units will be put into operation one after another in 2020-2022, and are expected to enter the centralized depreciation period from 2038-2040.

The estimate estimates that starting in '23 until the depreciation of all hydropower generator sets will save the company about 8.08 billion yuan in costs (accounting for about 37.3% of net profit for the full year of '22). Among them, a total of 947 million yuan due from 2023-2025 (760 million yuan for depreciation of the Three Gorges Unit in 25), 1.87 billion yuan due from 2026-2030 (360 million yuan for the Three Gorges depreciation due in '29, 980 million yuan for the 30-year Xixiang depreciation period), and 2.18 billion yuan of depreciation due from 2031-2035 (1.91 billion yuan for Xixiang depreciation due in '31).

Yalong River Hydropower:

Downstream Ertan Power Station: The unit was fully completed and put into operation in 1999, and it is estimated that all depreciation will have been completed by 2018;

Downstream Tongzilin, Guandi, Jinping Level 1 and Jinping Level 2 power plants: The units were put into operation one after another in 2012-2016, and are expected to enter the centralized depreciation period from 2030-2034;

Midstream Lianghekou and Yangfanggou Power Station: The units will be put into operation one after another in 2021-2022, and concentrated depreciation is expected to expire from 2039-2040.

The estimate estimates that from 2029 until the depreciation of the seven generators in the Yalong River Hydropower Station will be reduced in costs of about 1.43 billion yuan (accounting for 19.4% of the net profit of Yalong River Hydropower in the full year of '22), of which the stock units did not depreciate in 2023-2028; 385 million yuan due in 2029-2030 (the depreciation concentration of the Jinguan power pack depreciated in 2030); 658 million yuan of depreciation due in 2031-2035 (both Tongzilin and Jinguan power packs depreciated); 2036-40 million yuan Old expiration 3.86 100 million yuan.

Huaneng Hydropower:

According to Huaneng Hydropower's accounting policy, the depreciation period for generator sets is only 12 years, which is shorter than the depreciation period of 18 years for Changjiang Electric Power's units.

Lancang River Middle and Lower Reaches Power Station: The units were put into operation one after another in 2009-2014, and it is expected to enter the centralized depreciation period from 2021 to 2026;

Five power stations in the upper reaches of the Lancang River: The units were put into operation one after another in 2017-2019, and all depreciation is expected to expire in 2029-2031.

The estimate estimates that from 2023 until all generator sets depreciate, Huaneng Hydropower will save about 940 million yuan in costs (about 13.8% of Huaneng Hydropower's net profit in '22).

Among them, the 2023-2025 unit depreciation period is 530 million yuan (depreciation of Gongguoqiao units 1, 2 and Nuozadu units 7, 8, and 9 due in 2024; depreciation of the remaining units 3-6 in Longkaikou and Nuozadu expires in 2025); and 400 million yuan in depreciation due in 2026-2031 (centralized depreciation of Lanshang 5 factories expires in 2029-2031).

How do medium- to long-term electricity prices for hydropower go?

① In major hydropower provinces such as Sichuan and Yunnan, there is still room for further increases in electricity prices in the province. The average monthly clean energy transaction price in Yunnan Province from January to November 2023 was 0.232 yuan/kilowatt-hour. Compared with the average price of coal-fired transactions, clean energy electricity prices still have a lot of room for increase.

② Cross-provincial and cross-regional electricity prices: Compared with recipient provinces, the land-delivered electricity prices for hydropower across provinces still have a competitive price advantage. Example: The price of electricity delivered to Guangdong and Guangxi from the Wudongde Power Station is 0.032 and 0.073 yuan/kilowatt-hour lower than the local coal standard price, respectively.

③ As a clean energy source, the hydropower industry will benefit from power system reform in the long term. The cost advantage of hydropower will increase the amount of feed-in electricity, and the price advantage will become more obvious.

How to price Changjiang Electric Power using the interest spread method? ---The market requires dividend rates for high dividend targets = risk-free return rate+hypothetical interest spread.

1. The core assumption to find an anchor point for the hypothetical interest spread level: before the company announced the T-1 dividend plan in mid-T, the market's dividend expectation was the actual T-2 dividend amount; after announcing the T-1 dividend plan, the anchor point for the market's T-1 dividend expectations changed to a T-1 dividend commitment;

2. 24-year treasury bond yield center: Assuming that the average 24-year treasury bond yield is around 2.5%;

3. Spatial calculation of the market value of Changjiang Electric Power from the perspective of interest spreads: At the current point in time, the bank believes that the market's dividend rate requirement for Changjiang Electric Power is 2.5% (2024 10-year treasury bond yield central forecast value) +0.76% (Changjiang Electric Power's dividend rate and treasury bond yield assume an anchor point of interest spread) = 3.26%.

According to the estimated dividend amount for 2024: According to Wind's unanimous forecast on January 10, 2024, Changjiang Electric Power's net profit to mother in 2024 was 34.446 billion yuan, and the 70% dividend ratio corresponds to the dividend amount of 24.11 billion yuan. The interest spread value is anchored at 76 bp. When the interest spread range is 70-80 bp, the corresponding market value range for Changjiang Electric Power is 7307-753.5 billion yuan, and the corresponding target price range is 29.86-30.8 yuan. Compared with the closing price of Changjiang Electric Power on January 8, 2024 (23.60 yuan), there is room for increase of 26.5%-30.5%.

Risk warning: incoming water is lower than expected, investment in hydropower is lower than expected, risk of changes in electricity prices, estimates are subjective and are for reference only.