Electricity sales were poor due to weather and light abandonment, and performance was lower than expected: the company achieved net profit of HK$993 million last year, up 2.2% year over year, of which HK$426 million in the second half of the year, +22.3%/-24.8% year over year, lower than our/market expectations of 25%/27%, mainly due to lower electricity sales than expected due to weather and light disposal. Electricity sales increased 19.6% year over year to 3,817 gigawatt-hours. Of these, the second half of the year only increased by 14.1%/2.7% year over year, and the average utilization time for the whole year decreased by 2.5%. The electricity market accounts for 13%. Taking into account the green electricity transaction premium and market-based transaction discount, there is still a premium compared to the benchmark electricity price. Gross margin decreased 2.7 percentage points year over year to 67.9%, with a 2.6/4.7 percentage point year-on-year decrease of 65.5% in the second half of the year. The annual dividend per share was reduced by 60% to HK$0.06, and the dividend ratio was 50%.

The scale of the acquisition fell short of expectations, and financing rates continued to rise. The company acquired only 637 megawatts of projects from the parent company last year, which is lower than the previous 0.7-1 gigawatt guideline. The company plans to acquire a 0.7-1 gigawatt project this year, which is still below our expectations. Due to the US interest rate hike, the company's average loan interest rate reached 6.05% at the end of last year, up 0.5/1.0 percentage points year-on-year. The share of RMB loans with lower interest rates fell to 13% from 14% at the end of June. It has not yet been possible to continue to increase the share of RMB loans as previously indicated. Last year, the company's subsidy collection was HK$530 million, a year-on-year decrease of 75%. Receipts accounted for 43% of subsidy revenue. At the end of the year, subsidy receivables increased by HK$630 million to HK$3.75 billion over the same period last year.

The risk of electricity being discarded from stock projects and falling electricity prices has increased: Last year, the number of new PV installations in mainland China reached 216 gigawatts, far exceeding market expectations, leading to consumption pressure. The national light abandonment rate increased 1.7 percentage points to 2.9% year on year in December. The company's projects are distributed in the central and eastern regions. Consumption pressure was low, but last year, light was discarded for the first time, and the light disposal rate of 2.5% was higher than 2% in the country. We expect it to continue to rise, or close to 5% in the future. Since the second half of last year, many provinces have introduced policies to increase the market-based trading ratio of new energy sources. We expect that electricity prices will continue to fall in stock projects.

Lower the target price and remain neutral: We lowered our 2024/2025 profit forecast by 23% to HK$1.16 (previously HK$1.53) based on 8.5 times the price-earnings ratio for 2024. Although the sharp drop in component prices is beneficial to increasing the yield of the company's new projects, the profit uncertainty of the company's stock projects is high and will continue to suppress valuations, while the current high dividend rate (6.2% in 2024) will support the stock price and maintain neutrality.