Introduction to this report:
The 1Q24 company's electricity volume declined slightly year-on-year, and the 2Q24E electricity growth rate is expected to improve. The company's dividend value is expected to increase in the context of declining returns required by investors.
Key points of investment:
Maintain the “Overweight” rating: Maintain 2023-2025 EPS of 1.12/1.43/1.51 yuan. Considering the company's valuation premium as a hydropower faucet, the 2024 PE was given 21 times, the target price was raised to 30.03 yuan, and the “gain” rating was maintained.
Incident: The company announced that in 1Q24, domestic hydropower generation capacity was 52.7 billion kilowatt-hours, -5.1%; including Wudongde Power Station, 5.96 billion kilowatt-hours, +3.5%; Baihetan Power Station 10.7 billion kilowatt-hours, -20.8%; Xiluodu Power Station, 12.2 billion kilowatt-hours, -7.2%; Xiangjiaba Power Station, 6.44 billion kilowatt-hours, -18.7%; Three Gorges Power Station, 14 billion kilowatt-hours, +15.8% year on year; Gezhouba power station, 3.43 billion kilowatt-hours +8.9%.
Electricity consumption dropped slightly due to dry incoming water, and performance is expected to maintain positive growth. We estimate that the company's slight decline in 1Q24 power generation was mainly due to the year-on-year decline in incoming water from the Yangtze River Basin during the same period: the total amount of incoming water from the Wudongde/Three Gorges Reservoir was about 149/49.8 billion cubic meters, which was 7.7%/4.1% year-on-year decline. Considering factors such as the electricity price settlement base effect, we expect that the company's 1Q24E performance may still maintain positive growth. We expect the company's 2Q24E electricity growth rate to improve: 1) As of the end of 1Q24, the Three Gorges Reservoir had a water storage capacity of 25.4 billion cubic meters, a year-on-year increase of +1.20 billion cubic meters; 2) In 2Q23, China's hydropower usage time was 695 hours, the lowest value since 2005 (-25.1% compared to the historical average). We expect incoming water from the 2Q24E Yangtze River basin to improve marginally.
The “stable” attribute is invaluable, and dividend values are expected to increase. The company's main hydropower business is operating steadily (the average value of incoming water from the Yangtze River Basin has returned over the years). We believe that the steady increase in the company's total cash dividend is invaluable, and stable dividends are expected to bring a premium.
Risk warning: Incoming water falls short of expectations, electricity prices fall short of expectations, investment returns fall short of expectations, etc.