Core views:

The full year's results turned a loss into a profit, with Scenery's profit exceeding 3 billion yuan. The company released its 2023 annual report, achieving full year revenue of 122.4 billion yuan and net profit of 1,365 billion yuan (year-on-year increase of 1,773 billion yuan).

The sharp improvement in performance was mainly due to the effects of an 8% year-on-year decline in fuel costs; the fourth quarter results turned into month-on-month losses, taking into account the combined impact of the recovery in spot coal prices and asset impairment of 1,356 billion yuan at the end of the year. Looking at total profit by sector, coal and electricity losses of 133 million yuan in 2023 (loss of 6.053 billion yuan in the same period last year) are calculated as 1 cent of electricity loss for the whole year (loss of 3.3 cents in the same period of the previous year); 392 million yuan for gas and electricity (loss of 906 million yuan), wind power of 2,556 million yuan (+11.8% year over year), PV 480 million yuan (+8.1% year over year), and hydropower (-15.0% year over year).

4.8 GW of new installed capacity was added throughout the year, and the share of clean energy installed increased to 38%. The installed capacity in service reached 73 GW in 2023, of which 7.5 GW of wind power (2.05GW added) and 4.4 GW of photovoltaics (1.6 GW added); the share of clean energy installed increased to 37.75% (4.65 pct higher than the end of '22).

In terms of electricity prices, the feed-in tariff in 2023 was 466 yuan/megawatt-hour (tax included, +1.2%); among them, wind power and photovoltaics were 506 yuan/451 yuan/megawatt-hour (-5.9% and -22.1% YoY), respectively.

The profits of thermal power and hydropower are improving, and the development of green power is expected to accelerate. In terms of thermal power, the company's Changxie Coal's compliance level is expected to continue to rise. Since March, spot coal prices have dropped by more than 80 yuan/ton from the high point in late February, while capacity electricity prices have further strengthened expectations for improving thermal power profits; hydropower has also been affected by the recovery of incoming water, etc., and performance is also highly flexible (total hydropower profit fell 15% year on year in 2023), and is optimistic that both thermal power and hydropower profits will improve. At the end of 2023, wind power installed capacity was 0.41 times higher and PV 0.49 times higher. It is expected that green power development will accelerate.

Profit forecasting and investment advice. Net profit due to mother from 2024 to 2026 is estimated to be 39.75, 47.93, and 5.454 billion yuan, respectively. The PE corresponding to the latest closing price is 13.22, 10.96, and 9.64 times, respectively. The company is a domestic power leader. Adhering to the complementary advantages of scenery, water and fire, the bottom can be expected to reverse. Referring to the peer valuation level, the company was given a PE valuation of 15 times in 2024, corresponding to a reasonable value of 3.22 yuan/share and a reasonable value of HK$1.55 per share for H shares, maintaining the “buy” rating for A/H shares.

Risk warning. Coal prices continue to rise; construction and utilization hours for new energy projects fall short of expectations, etc.