Description of the event

The company issued an announcement on the completion of power generation for the first quarter of 2024: In the first quarter of 2024, the total power generation capacity of the six cascade power plants in the company was about 52,747 billion kilowatt-hours, a decrease of 5.13% over the same period last year.

Incident comments

Dry incoming water limited hydropower output, and electricity performance in the first quarter was under pressure. In the first quarter of 2024, the total amount of incoming water from Wudongde Reservoir in the upper reaches of the Yangtze River was about 14.849 billion cubic meters, 7.71% less than the same period last year; the total amount of incoming water from the Three Gorges Reservoir was about 49.767 billion cubic meters, 4.14% lower than the same period last year. Affected by dry incoming water, the total power generation capacity of the company's six cascade power plants was about 52,747 billion kilowatt-hours, a decrease of 5.13% over the same period last year. Although the overall electricity capacity is under pressure, for example, the Three Gorges Power Station and the Gezhouba Power Station performed well. Among them, the Three Gorges Power Station completed a power generation capacity of 14.015 billion kilowatt-hours, an increase of 15.79% over the same period last year; the Gezhouba Power Station completed 3.43 billion kilowatt-hours of power generation, an increase of 8.94% over the same period last year. However, as power plants that have been in service for a relatively long time, the Three Gorges and Gezhouba power stations have a stronger overall profitability, which may smooth the company's overall profit pressure due to the decline in electricity capacity to a certain extent. In terms of other power plants, the Wudongde Power Station completed power generation capacity of 5.956 billion kilowatt-hours, an increase of 3.49% over the same period last year; the Baihetan Power Station completed 10.738 billion kilowatt-hours, a decrease of 20.79% over the same period of the previous year; the Xiluodu Power Station completed 12.171 billion kilowatt-hours, a decrease of 7.24% over the same period last year; and the Xiangjiaba Power Station completed a power generation capacity of 6.436 billion kilowatt-hours, a decrease of 18.65% over the same period last year. Overall, due to the year-on-year decline in the company's electricity volume, the company's main power business performance may still be under some pressure. In terms of participating companies, due to the significant year-on-year decline in coal prices in the first quarter, the thermal power business performance of some participating companies is expected to achieve upward elasticity, and hydropower generation capacity in Hubei Province (excluding the Three Gorges) increased by 95.35% and 103.55%, respectively, in January-January, so investment income may achieve steady performance. With a smooth return on investment, the pressure on the company's overall performance in the first quarter may be relieved to a certain extent.

Market-based reforms are being promoted, and short-term incoming water will not change expectations for the whole year. Currently, in addition to Yunnan Province, which has a high rate of marketization of hydropower, gradually showing a better price center driven by tight electricity supply and demand, the hydropower price mechanism for electricity transmission across provinces and regions has also shown new changes in 2022. Starting from August 1, 2022, the Jinguan Power Pack's land-based electricity price formation mechanism has been refined to a “benchmark landing electricity price+floating electricity price” mechanism by linking the benchmark price of raw coal power to the benchmark price of current coal electricity. In addition, the company's Baihetan Power Station's electricity delivery price to the Soviet Union will also implement the “benchmark landing electricity price+floating electricity price” mechanism in January 2023. However, due to the 2024 Jiangsu Changxie Market transaction results (that is, 0.45294 yuan/kilowatt-hour), the year-on-year decrease of 0.0137 yuan/kilowatt-hour is estimated. The impact on Changjiang Electric Power's profit is estimated to be 132 million yuan, less than 0.5% on the company's overall performance. Although incoming water dried up in the first quarter, the company's overall electricity capacity was under pressure, and the water level of the company's main power plants has continued to be repaired since April 7. As of April 7, the water level in the upper reaches of the Three Gorges was 158.96 meters, up 2.46 meters; the upstream water level of Xiangjiaba was 379 meters, up 5.17 meters year on year; and the upstream water level of Xiluodu was 581 meters, up 24 meters year on year. Abundant water storage will guarantee subsequent hydropower output. We believe that the company's hydropower generation capacity is still expected to grow steadily throughout the year.

Investment advice: According to the latest operating data, we adjust the company's profit forecast. We expect the company's corresponding EPS in 2023-2025 to be 1.12 yuan, 1.32 yuan, and 1.35 yuan, respectively, and the corresponding PE will be 22.66 times, 19.25 times, and 18.76 times, respectively, maintaining the company's “buy” rating.

Risk warning

1. The risk of electricity price fluctuations;

2. The risk of incoming water falling short of expectations.