Incident: The company released its 2023 annual report. In 2023, it achieved revenue of 122.4 billion yuan, an increase of 4.77% over the previous year; net profit to mother was 1,365 million yuan, a loss of 408 million yuan in the same period last year, turning a loss into a profit. However, after deducting interest on perpetual bonds, the basic earnings per share of -0.0154 yuan were still lower than our expectations. It was mainly due to asset impairment and the decline in PV electricity prices in the fourth quarter.

The improvement on the cost side of thermal power was obvious, driving performance to reverse losses. In 2023, the company achieved 259.4 billion kilowatts of feed-in electricity, an increase of 5.06% year-on-year, and an increase of 12.5 billion kilowatts over the same period last year. Among them, the feed-in electricity volume of thermal power increased by 12.38 billion kilowatts over the same period last year. In terms of electricity prices, the company's average tax-inclusive feed-in tariff in 2023 was 0.4664 yuan/kilowatt hour, a slight increase of 1.22% over the previous year. In terms of cost, the fuel cost per unit of thermal power generation decreased by 27.21 yuan/megawatt-hour year on year, and the total cost of electricity sales reached 91.9 billion yuan, which is the same as in 2022. The triple benefits of cost, electricity, and electricity prices led the company's net profit to mother to reverse losses by a large margin.

Remarkable results have been achieved in optimizing the energy structure, and the installed capacity of new energy sources is growing rapidly. The annual gross profit of the company's photovoltaics, wind power, hydropower and gas businesses was 4.8, 25.56, 13.83, and 392 million, respectively. Clean energy has become the company's main source of profit.

The company added 4.8 million kilowatts of installed capacity in 2023, of which 2.05 million kilowatts and 1.6 million kilowatts of wind power and photovoltaics were installed, respectively, accounting for 76%. Of the total installed capacity, wind power and photovoltaics reached 746 million kilowatts and 4.37 million kilowatts respectively, compounded by 9.2 million kilowatts of hydropower. The share of clean energy installed increased to 37.75%, an increase of 4.6 percentage points over the previous year.

At the end of 2023, the company was constructing 5.2 million kilowatts of new energy projects. With the implementation and operation of the installed equipment under construction and the increase in approved installed capacity, the company continued to advance the energy structure optimization and green transformation process.

Financial expenses are expected to decline during the interest rate cut cycle, reducing financial pressure during periods of high capital expenditure. In 2023, the company's financial expenses were 566.8 billion yuan, and the financial expenses ratio was 4.63%, a year-on-year decrease of 1.03 percentage points. During the year, the company added 11 billion perpetual bonds, with a balance of 45.5 billion yuan. The 5-year LPR has been lowered twice in a row, and we believe there is still room for the company's financial expenses rate to decline during the interest rate cut cycle.

Profit forecast and rating: Taking into account coal prices, electricity prices, and the commissioning progress of new energy projects, we lowered the company's 2024-2025 net profit forecast to be 32.78 billion yuan and 4.492 billion yuan respectively (previous forecasts were 56.15 billion yuan and 6.198 billion yuan, respectively), and added the 2026 net profit forecast to 5.835 billion yuan; the current stock price corresponds to 2024-2026 PE by 16, 12, and 9 times, respectively. We believe that under the dual-carbon strategy, the importance of thermal power peak-shaving functions will continue to be reflected in power industry reforms. The company is expected to gain greater performance flexibility in power reform and continue to maintain a “buy” rating.

Risk warning: Electricity price policies fall short of expectations, and the development of new energy projects falls short of expectations