Incidents:

On March 22, 2024, Datang Power released its 2023 annual report:

1) Achieved revenue of 122.4 billion yuan in 2023, +4.8% year-on-year; realized net profit of 1.37 billion yuan, loss of 410 million yuan in the same period last year; realized net profit of 550 million yuan after deduction, and loss of 1.48 billion yuan for the same period last year.

2) 2023Q4 achieved revenue of 31.79 billion yuan, +7.5% year-on-year; realized net profit of 1.47 billion yuan, compared with -1.17 billion yuan in the same period last year; realized net profit of 1.63 billion yuan after deduction, compared to -1.77 billion yuan in the same period last year.

Investment highlights:

Coal and electricity losses were drastically reduced, and changes in depreciation+income tax expenses affected 2023Q4 results. In 2023, the company achieved net profit of 1.37 billion yuan, turning a year-on-year loss into a profit, mainly due to a sharp decrease in coal and electricity performance. Total profit from coal electricity/combustion engines in 2023 was -1.3/39 billion yuan, and in 2022 it was -60.5/-0.9 billion yuan; total profit of wind power/photovoltaic/hydropower was 25.6/4.8/1.38 billion yuan, respectively, with a year-on-year change of +11.8%/+8.1%/-15%. 2023Q4's net profit attributable to the mother was 1.47 billion yuan, and the loss increased year on year. First, due to the impairment loss of 1.36 billion yuan of accrued assets (including 1.2 billion yuan in the coal mine reduction value of the Inner Mongolia Integrated Coal and Electricity Project), and the other is due to the year-on-year increase in income tax of 1.40 billion yuan (+1.55 billion yuan in deferred income tax expenses in 2023). Excluding the effects of impairment, 2023Q4's performance improved significantly. 2023Q4's gross profit margin was 14.6%, +9.8pct year over year, and +1pct month-on-month.

2023H2 coal-fired power turned a loss into a profit, and close to 10GW of thermal power projects is expected to contribute to growth.

The company's total coal and electricity profit in 2023 was -130 million yuan, and the net profit (total profit caliber, same below) was 0.1 cents/degree, a significant improvement over -3.3 points/degree in 2022. The total profit of 2023H2 coal and electricity was 670 million yuan, with a net profit of 0.7 cents/degree, turning a loss of -3.9 cents/degree compared to 2022 H2 to a profit, mainly due to falling coal prices. In 2023, the company has 4.67 GW of thermal power under construction, 4 GW of coal power approved, and 1.08 GW of combustion engines approved. The total number of projects in progress is close to 10 GW, which is expected to contribute to the growth of thermal power.

The increase in affordable projects affects the rate of profit growth, and there are plenty of on-hand projects. In 2023, the company's total wind power/photovoltaic profit was 2.566/480 million yuan, +11.8%/+8.1% year over year, and feed-in electricity volume was +16.5%/+60% year over year. The total profit growth rate was lower than the electricity growth rate, mainly due to the decline in electricity revenue. In 2023, wind power/photovoltaic power revenue was -0.028/-0.113 yuan/kilowatt hour, and net profit per kilowatt hour was -0.008/-0.057 yuan/kilowatt hour year on year. We think the decline in electricity revenue may be due to an increase in affordable projects. The decline in net profit from electricity is lower than that of electricity revenue, or because the number of hours used by wind power/photovoltaics is +114h/+80h year-on-year. It is worth noting that the total profit of 2023H2 PV was 140 million yuan, or -42.7% year-on-year. We think this may be due to poor lighting in 2023Q4 and falling electricity prices, which affected profits. In 2023, the company added 2.0/1.6 GW of installed wind power/photovoltaics, 3.0/2.1 GW under construction, and 2.2/5.5 GW approved. Ongoing projects are sufficient, and the growth of the new energy business is expected to continue to recover.

Profit forecast and investment rating: According to the latest performance, we adjusted the profit forecast. The company's net profit for 2024-2026 is estimated to be 44.8/51.0/5.61 billion yuan, respectively, and the corresponding PE is 12/10/9 times, respectively. Looking ahead to 2024, the company's thermal power performance is expected to improve; incoming hydropower is expected to improve repair performance; and green power installations are expected to further contribute to growth and maintain a “buy” rating.

Risk warning: Policy progress falls short of expectations; new installed capacity falls short of expectations; sharp rise in coal prices; reduction in electricity prices; dry water supply; increased industry competition; risk of depreciation, etc.