Introduction to this report:

The decline in the company's 4Q23 performance was affected by factors such as increased expenses and depreciation; projects under construction progressed in an orderly manner, the company's dividend promises were fulfilled year by year, and there is room for improvement in dividends.

Summary:

Maintain the “gain” rating: maintain the 2024-2025 EPS 0.25/0.26 yuan, and give 2026 EPS 0.28 yuan. Based on comparable company PE valuation, the company was given a 2024 11xPE valuation, and the target price was raised to HK$2.97 to maintain the “gain” rating.

The performance was in line with expectations. The company's revenue in 2023 was 82.5 billion yuan, -0.3% YoY; net profit to mother was 10.7 billion yuan, +7.6% YoY. The company's performance was basically in line with our expectations. On a quarterly basis, 4Q23 revenue was 22.7 billion yuan, -7.0% YoY; net profit to mother was 1.02 billion yuan, -12.8% YoY.

The decline in the company's 4Q23 performance was mainly affected by factors such as increased expenses and impairment. The company's 4Q23 Holdings feed-in electricity capacity was 43 billion kilowatt-hours, +0.7% year over year; gross profit margin was 25.4%, +1.8 ppts year over year. We estimate that the decline in the company's 4Q23 performance is mainly due to: 1) the 4Q23 company's management expense rate/R&D expense ratio of 3.7%/6.1%, +1.1/+2.0 ppts year on year; 2) the 4Q23 company's accrued assets depreciation of 340 million yuan, +320 million yuan year over year.

Projects under construction are progressing in an orderly manner, and there is room for improvement in dividends. By the end of 2023, the company managed a total of 11 units under construction, with a total installed capacity of 13.2 GW. According to the progress of the company's ongoing projects, the company's nuclear power installations grew steadily from 2024 to 2028 (an average of 1 to 2 units are put into operation every year). According to the “Shareholder Dividend Plan for the Next Five Years (2021-2025)” issued by the company, the company will achieve a moderate increase in the dividend ratio based on the 2020 dividend ratio (42.3%). The company plans to pay a dividend of 0.09 yuan per share in 2023. The dividend ratio is estimated at 44.3% (+0.2 ppts year over year) in terms of net profit attributable to the mother. The dividend promise will be fulfilled year by year. We expect there is room for dividends to increase as projects under construction are put into operation and free cash flow improves.

Risk warning: The progress of nuclear power projects is slower than expected, the price of nuclear power is lower than expected, the number of hours used is less than expected, and the cost of nuclear fuel exceeds expectations.