Introduction to this report:
The company's dividends remained stable in 2023, and 1Q24 performance was growing. We expect the 2Q24E incoming water to improve.
Key points of investment:
Maintaining the “increase in holdings” rating: We believe that the company's main hydropower business is operating steadily, and the “stable” attribute supported by abundant cash flow is expected to bring about a valuation premium. The 2024-2025 EPS will be maintained at 1.43/1.51 yuan, and the 2026 EPS will be granted at 1.60 yuan. Maintain the target price of 30.03 yuan and maintain the “Overweight” rating.
Dividends have remained stable, and 1Q24 results are growing. The company's revenue in 2023 was 78.1 billion yuan, +50.0% year-on-year; net profit to mother during the same period was 27.2 billion yuan, +27.8% year-on-year. The company's 1Q24 revenue was 15.6 billion yuan, +1.6% YoY; net profit for the same period was 3.97 billion yuan, +9.8% YoY, in line with our previous expectations. The company plans to pay a cash dividend of 201 billion yuan in 2023 (basically the same as the previous year), with a dividend of 0.82 yuan per share, with a dividend ratio of 73.7%.
It also shows an increase in profits from the main business, and investment income drives performance. The company's 1Q24 performance growth mainly benefited: 1) the company's 1Q24 joint venture investment income was 890 million yuan, +57.1% year over year; 2) the company's 1Q24 consolidated main business profit (operating profit - net investment income - asset disposal income) of 3.96 billion yuan, +3.0% year over year. We speculate that the main hydropower business remained relatively stable against the backdrop of a slight decline in electricity volume in 1Q24, or that it mainly benefited from factors such as the electricity price settlement base effect.
Q2 Incoming water is expected to improve, and electricity consumption is expected to resume growth. We expect the company's 2Q24E electricity growth rate to improve: 1) As of the end of 1Q24, the Three Gorges Reservoir had a water storage capacity of 25.4 billion cubic meters, a year-on-year increase of +1.20 billion cubic meters; 2) In 2Q23, China's hydropower usage time was 695 hours, the lowest value since 2005 (-25.1% compared to the historical average). We expect incoming water from the 2Q24E Yangtze River Basin to improve marginally.
Risk warning: Incoming water falls short of expectations, electricity prices fall short of expectations, investment returns fall short of expectations, etc.