Incident: On April 11, the company released its 2023 annual report. During the reporting period, it achieved operating income of 1,482 billion yuan, up 4.36% year on year; net profit of 4.400 billion yuan, up 25.17% year on year; net profit after deducting non-return to mother of 4.316 billion yuan, up 25.24% year on year; the company plans to distribute cash dividends of 0.4 yuan per share to all shareholders, for a total cash dividend of 1.95 billion yuan, with a cash dividend ratio of about 44.31%. The company released its 2024 quarterly report. During the reporting period, it achieved operating income of 258 million yuan, an increase of 2.92% year on year; net profit to mother of 1,273 billion yuan, up 12.06% year on year; net profit after deducting non-return to mother of 1,268 billion yuan, an increase of 11.88% year on year.

The contribution of investment income to performance is expected to increase: benefiting from the incremental contribution of the two and Yang power plants and rising electricity prices, the Yalong River hydropower performance continued to rise. In 2023, the company's investment income increased by 602 million yuan to 4.154 billion yuan, driving the company's annual net investment income by 898 million yuan to 4.813 billion yuan; in addition, the company's investment income in Guoneng Daduhe and China Nuclear Huineng increased by 1.50 million yuan, 118 million yuan to 3.05 billion yuan and 171 million yuan, respectively. The Dadu River is limited by factors such as the construction of delivery channels, and profitability is limited. With hydropower development in Sichuan and the corresponding outbound power grid construction, the consumption problems plaguing the development of the Dadu River Basin are expected to be solved at an accelerated pace, and the profitability of Dadu River Company is expected to improve. As a new energy development platform under China Nuclear Power, CNNC Huineng added about 6.0 GW of new energy installed capacity in 2023, and the company is expected to fully share the rapid development results of CNNC HuiNeng; the two are expected to fully share the results of CNNC HuiNeng's rapid development; The company's contribution to investment income is expected to gradually increase.

The reduction in PV volume affected the revenue growth rate in a single quarter: In 1Q24, the company completed 784 million kilowatts of power generation, up 10.6% year on year. Among them, holding hydropower benefited from improved incoming water, completing 753 million kilowatt-hours of power generation in a single quarter, up 12.7% year on year; however, during the same period, PV completed 31 million kilowatt-hours of power generation, down 24.4% year on year, and feed-in tariffs fell 10.9% year on year to 0.57 yuan/kilowatt-hour (excluding tax). The company's revenue growth rate was 7.66 percentage points lower than the growth rate of power generation due to the reduction in PV volume and price reduction.

Fee reduction and increase single quarter performance: In 1Q24, the company achieved net investment income of 1,328 billion yuan, an increase of 0.77 million yuan, an increase of 6.1%; financial expenses decreased by 52 million yuan to 103 million yuan, a decrease of 33.6%. Financial cost savings helped the company to grow 5.9 percentage points higher than the growth rate of investment income.

Investment advice: The company's hydropower supply and incoming water supply have improved, and the contribution of investment income to performance continues to increase. According to the electricity volume and electricity price adjustments on the company's profit forecast, after considering the impact of convertible debt-for-equity swaps on share capital, EPS is expected to be 1.00/1.05 yuan (previous value 1.09/1.13 yuan), and the corresponding closing price of PE on April 11 will be 16.8/16.1/15.4 times, respectively. Referring to the company's historical valuation and peer-comparable company valuation levels, the company will be given a PE valuation of 18.0 times in 24 years. The target price is 18.00 yuan/share to maintain a “careful recommendation” rating. .

Risk warning: 1) Incoming water from the basin is running out; 2) falling demand suppresses electricity consumption; 3) Market transactions and electricity price fluctuations; 4) policy adjustments such as fiscal taxation.