Incidents:

The company announced its 2023 annual report and 2024 quarterly report. In 2023, the company achieved operating income of 1.48 billion yuan, an increase of 4.36% over the previous year, and achieved net profit of 4.4 billion yuan, an increase of 25.17% over the previous year. In the first quarter of 2024, the company achieved total revenue of 258 million yuan, an increase of 2.92% over the previous year; net profit to mother was 1.27 billion yuan, an increase of 12.06% over the previous year.

The increase in investment income contributed by major participating companies in 2023 is the main driver of profit growth. The main shareholding companies of Sichuan Investment Energy include Yalong River Hydropower Company, Guoneng Daduhe Hydropower Company, and CNNC Huineng. In 2023, the company achieved a net investment income of 4.813 billion yuan, an increase of 22.9% over 2022. Among them, the investment income of Yalong River Company, which holds 48% of the shares, increased 602 million yuan year on year, investment income from Daduhe Company increased 150 million yuan year on year, and investment income from CNNC Huineng increased 122 million yuan year on year.

Yalong River Hydropower Company: In terms of electricity volume, the Yalong River Hydropower Company generated 84.24 billion kilowatt-hours in 2023, a year-on-year decrease of 4.8%; in terms of electricity prices, thanks to the increase in some electricity prices sent by Jinguan Power Pack compared to the same period, the annual average tax-inclusive feed-in tariff was 0.31 yuan/kilowatt-hour, up 11.1% year on year. The sharp rise in electricity prices offset a slight decline in electricity consumption, driving Yalong River Hydropower Company to achieve net profit of 8.66 billion yuan for the whole year, an increase of 17.6% over the previous year.

Daduhe Hydropower Company: In 2023, Daduhe Hydropower Company achieved net profit of 1.92 billion yuan, an increase of 14.1% over the same period in 2022. At the same time, the company completed a 10% shareholding increase in Dadu River in 2023. The increase in shareholding ratio and the increase in net profit of Daduhe Hydropower Company led to a year-on-year increase of 150 million yuan in investment income of Sichuan Investment Energy.

Electricity prices in the Yalong River increased in Q1 in 2024 to smooth out incoming water fluctuations, driving Q1 profits to maintain positive growth. In the first quarter of 2024, incoming water from the Yalong River basin was dry. The Yalong River's power generation in Q1 fell 8.2% year on year to 19.63 billion kilowatt-hours in Q1. Under pressure from the decline in electricity volumes of major participating companies, the company's net profit for the first quarter still increased by 12.1% year-on-year. Our analysis may include the following two main reasons: ① due to changes in the electricity structure, hydropower prices in the Yalong River increased 4.46% year on year in Q1; ② Sichuan Investment Energy's Q1 financial expenses were about 104 million yuan, a decrease of about 49 million yuan compared to the same period in 2023.

The participating hydropower companies have sufficient reserves of power plants under construction and will contribute to future profit growth. Dadu River Hydropower Company: By the end of 2023, the Dadu River Basin has about 3.52 million kilowatts of hydropower units, including Shuangjiangkou Hydropower Station, Jinchuan Hydropower Station, Zhoudou Dam Level 2, and Shaping Level 1 hydropower stations; Yalong River Hydropower Company: The Yalong River Basin Integrated Hydropower Base has been included in the national “14th Five-Year Plan”. The total scale of the base exceeds 100 million kilowatts. The plan is to install 78 million kilowatts at this stage. Fully built. After the new units are put into operation by major participating hydropower companies, it will continue to contribute to the increase in investment income and drive the company's performance growth.

Profit forecast and valuation: Optimistic about the continued growth of high-quality hydropower, including Yalong River Hydropower and Dadu River Hydropower, the company is expected to achieve net profit of 50.8/53.6/5.56 billion yuan in 2024-2026 (49.5.11 billion yuan before 24/25), corresponding PE is 16/15.2/14.7x, respectively, maintaining a “buy” rating.

Risk warning: Risks such as fluctuations in international gas prices exceeding expectations, falling short of expectations in domestic favorable price policies, falling short of expectations in downstream demand, falling short of expectations in demand for photovoltaic film, and fluctuations in sales prices