Core views:
Investment income grew steadily, and first-quarter results exceeded expectations. In 2023, the company achieved net profit of 4.40 billion yuan (+25.2% year-on-year, increase of 885 million yuan) and investment income of 4.813 billion yuan (+22.9% year-on-year, increase of 898 million yuan). Among them, investment income from Yalong River Hydropower, Guoneng Dadu River, and CNNC Huineng increased by 6.02 billion yuan, 150 million yuan, and 122 million yuan respectively. 2024Q1 achieved net profit of 1,273 million yuan (up 12.1% year on year). The reason that the performance exceeded expectations may have contributed to the increase in electricity prices and new energy sources in the Yalong River. At the same time, financial expenses decreased by 49 million yuan year on year.
Electricity prices in the Yalong River have increased, and the high level of energy storage guarantees power generation in the second quarter. Since 23Q2, incoming water from the Yalong River has dried up. The annual Yalong River's hydropower generation capacity was 84.24 billion kilowatt-hours (-4.8% year over year), but electricity prices increased dramatically. The feed-in tariff in '23 was 0.310 yuan/kilowatt-hour (+11.1% year over year), relieving the downward pressure on electricity, mainly due to the rise in feed-in tariffs for hydropower transmission in the Yalong River and the rise in electricity prices in the province. In 2024, incoming water from the Yalong River was normal, but the amount of water discharge was low. We estimate that the Yalong River's power generation fell 7% in the first quarter, but the energy storage level was 2.7 billion kilowatt-hours higher. 23Q2 is a low electricity base. 24Q2 is high energy storage and incoming water recovery, and the Yalong River is expected to usher in a significant increase in power generation.
The Yalong River promotes the integration of water and landscape storage, and the Dadu River will reach its peak of production. The total hydropower installed capacity under construction in the middle reaches of the Yalong River is 3.72 GW, and 1.2 GW has been saved at the mouth of the two estuaries. Dove savings have been approved; Ke La PV and Labashan Wind Power have already been put into operation, and 1.43 GW (23H1) of landscape projects such as Zalashan PV are being built. The water landscape will become the main performance growth point of the Yalong River. The company acquired a new 10% stake in Guoneng Dadu River, increasing its shareholding ratio to 20%. At the same time, several hydropower plants under construction in the Dadu River will be put into operation by the end of the 14th 5th year. Combined with wastewater treatment, the performance is more flexible. The company's self-built Yinjiang Hydropower Station is expected to be put into operation by the end of 2025, and the Pingshan Pumped Storage Power Station (1.2GW) was selected.
Profit forecasting and investment advice. The company's net profit for 24-26 is estimated to be 51/55/ 60 billion yuan, respectively, and the PE corresponding to the latest closing price is 16.2/14.9/13.8 times, respectively. The hydropower performance of the Yalong River is growing steadily, and the Dadu River will enter the peak of commissioning. Referring to peer valuation, the company was given a 17x PE valuation in 2024, corresponding to a reasonable value of 17.86 yuan/share, maintaining a “buy” rating.
Risk warning. Fluctuations in incoming water; risk of feed-in tariff adjustments; fluctuations in investment returns, etc.