Key points of investment:

Incident: The company released its financial report for the first quarter of 2024. The 1Q24 company achieved operating income of 45.555 billion yuan, a slight decrease of -0.13% year on year, and net profit attributable to shareholders of listed companies of 1,785 billion yuan, an increase of 88.62% year on year. The performance slightly exceeded our expectations.

Electricity prices have remained stable, and the fall in coal prices has led to an increase in profitability. The company has significant advantages in terms of coal insurance and long-term cooperation coal compliance. The stock of thermal power units is of high quality, and the cost of coal combustion is lower than the industry average. 1Q24's thermal grid power generation capacity was 86.023 billion kilowatt-hours, up 4.24% year on year, and installed thermal power capacity was 72.574 million kilowatts, up 1.66% year on year. According to Wind data, the average price of 5,500 kcal coal in Qinhuangdao reached 901.74 yuan/ton in 1Q24, down 20% from 1128.91 yuan/ton in 1Q23. Against the backdrop of a sharp decline on the cost side, the company's average feed-in tariff in the first quarter was 455.58 yuan/kilowatt-hour, down 1.62% year on year, and remained stable. The decline on the cost side is expected to be greater than the decline in electricity prices, and 1Q24's coal and electricity profitability has rebounded markedly.

The amount of feed-in electricity in hydropower declined slightly year-on-year in the first quarter, and there is strong certainty about long-term growth. The 1Q24 hydropower grid generated 7.728 billion kilowatt-hours, a year-on-year decrease of 3.22%. Among them, the feed-in electricity volume in Sichuan Province, where the company's core hydropower asset is located, was 6.297 billion kilowatt-hours, a year-on-year decrease of 5.95%. The short-term decline in power generation capacity does not affect the long-term development trend of the company's hydropower. According to the 2023 annual report, the company is constructing about 3.52 million kilowatt hydroelectric power units in the Dadu River basin. The opening of the Sichuan-Chongqing UHV line in 2025 will further open up space for consumption in the province, and the Dadu River water disposal phenomenon is expected to improve. Furthermore, the Shuangjiangkou Hydropower Station is scheduled to be put into operation this year, which can increase the power generation capacity of cascade power plants in the lower reaches of the Dadu River during the dry season. Based on factors such as an increase in installed hydropower capacity and an improvement in incoming water conditions, we are optimistic that the supply and demand of electricity in Sichuan will continue to tighten, and that the company's hydropower performance will grow steadily against the backdrop of a sharp rise in volume and price.

The scale of installed capacity continues to expand, and new energy generation continues to grow at a high rate. The company's wind power feed-in capacity was 5.138 billion kilowatt-hours, up 11.66% year on year; PV feed-in power was 1,801 billion kilowatt-hours, an increase of 136.26% year on year. The high increase in installed capacity led to a rapid growth in the scale of feed-in power. In 2024-2025, the company's new energy development ushered in a phase of accelerated quality improvement. The installed capacity of 1Q24 New Energy Holdings increased by 635,500 kilowatts, and it is expected that the scale of new energy construction throughout the year will reach a record high.

Investment income turned losses into profits, and the level of cost management continued to improve. The company divests inefficient assets and further improves asset management.

1Q24 Company removed Prudential Shendong Power Co., Ltd. from the scope of the consolidated statement. The move contributed 199 million yuan to the company's net profit. In addition to the steady increase in the performance of holding assets, the performance of joint ventures in which 1Q24 participated also picked up sharply, with investment income of 450 million yuan, an increase of 550 million yuan over the same period last year. Total investment income also increased from -120 million yuan in the same period last year to 770 million yuan. In terms of three fees, the company's sales expenses, management expenses and financial expenses all achieved year-on-year declines, of which financial expenses decreased by 90 million yuan to 1,645 million yuan year-on-year. The level of cost management continues to improve, further improving profitability.

Profit forecast and rating: Based on the company's business situation in the first quarter of 2024, we maintain the company's net profit forecast for 2024-2026 at 84.21, 93.43, and 99.88 billion yuan (net profit for 24 years has not yet taken into account the investment income impact of the proposed transfer of 50% of Guodian Construction Investment's shares at 6.739 billion yuan). The current stock price corresponds to PE 11, 10, and 9 times, respectively. The company's thermal power cost advantage is remarkable. Abundant cash flow guarantees the company's installed energy capacity in 2024-2025. It is worth looking forward to the commissioning of hydroelectric power units in the late 14th Five-Year Plan period, and maintains a “buy” rating.

Risk warning: coal prices fluctuate high, incoming water falls short of expectations, new energy installations fall short of expectations