Incidents:

The company released its 2023 annual report, and achieved revenue of 2,641 million yuan in 2023, +29.05% year-on-year; net profit to mother was 521 million yuan, +72.62% year-on-year.

Among them, 2023Q4's revenue in a single quarter was 729 million yuan, +49.66% year-on-year; net profit to mother was -38 million yuan, compared to -64 million yuan in the same period last year.

Opinions:

The sharp rise in volume and price boosted the company's net revenue and profit growth in 2023. In 2023, the wind power photovoltaic projects under construction by the company were put into operation one after another, adding 650,000 kilowatts of installed capacity. At the same time, due to the increase in incoming water volume in the Taohe River Basin and the Bailongjiang River Basin, the power plant completed 8.633 billion kilowatt-hours of power generation throughout the year, with a power generation capacity of 7.296 billion kilowatt-hours in the same period last year, an increase of 1,337 billion kilowatt-hours over the previous year. The company's average feed-in tariff in 2023 was 346.85 yuan/megawatt-hour, and the average feed-in tariff for the same period last year was 315.11 yuan/megawatt-hour, an increase of 10.07% over the previous year.

It is planned to jointly develop a 6GW large base project with China Resources, and the installed scale of new energy is expected to continue to increase. As of the end of 2023, the company's holding installed capacity was 3,5397 million kilowatts, of which hydropower/wind power/photovoltaic holding installed capacity was 1.702 million kilowats/1.103,500 kilowats/736,000 kilowatts, respectively. In March 2024, the company announced that it plans to establish a joint venture with China Resources Electric Power New Energy Investment Co., Ltd. to jointly develop and build a 6 million kilowatt new energy project in the Tengger Desert, of which Gansu Energy holds 51% of the shares. In addition, the company has also reserved construction indicators such as Wuwei Minqin's 1 million kilowatt wind power and photovoltaic projects. The development and promotion of new projects will further enhance the company's installed capacity and consolidate its business advantages.

Actively promote the acquisition of 66% of Gansu Power Investment Changle Power Generation's shares and expand into the Diaofeng Thermal Power business field. In March 2024, the company announced a plan to acquire 66.00% of the shares of the Electric Investment Group Changle Company. The price of the underlying asset, share and cash consideration ratio have not yet been determined.

Changle Company achieved net profit of 674 million yuan in 2022. It is the largest peak-shaving thermal power project in the northwest region. It is also a supporting peak-shifting power supply for the Qishao±800 kV UHVDC transmission project. The first phase of the 4*1 million kilowatt ultra-supercritical coal-fired units have all been completed and put into operation for power generation. The second phase of the 2*1 million kilowatt project began construction and expansion in April 2023, and the total installed capacity will reach 6 million kilowatts. This transaction will help listed companies expand into peak-shifting thermal power business fields related to new energy power generation, optimize power structures, and enhance the core competitiveness of the power business.

Profit forecast and investment rating: The company has sufficient new energy reserve projects and is expected to continue to contribute to growth. The injection of thermal power assets will also enrich the power supply structure and enhance business competitiveness.

Without considering Changle Power Generation's injection, the company's net profit for 2024-2026 is estimated to be 6.09/669/748 million yuan, respectively, corresponding to 2024-2026 PE 15.23/13.85/12.38 times, respectively. Maintain an “Overweight” rating.

Risk warning: Policy progress falls short of expectations; new installations fall short of expectations; asset injection progress falls short of expectations; electricity prices fall short of expectations; increased industry competition; tripartite data statistics risks, etc.