Key points of investment:

Event: The company released its 2024 quarterly report. 1Q24 achieved operating income of 30.737 billion yuan, up 9.58% year on year; net profit attributable to shareholders of listed companies was 1,331 billion yuan, up 872.26% year on year; basic earnings per share was 0.0505 yuan/share, up 517.44% year on year; owner equity attributable to shareholders of listed companies was 78.178 billion yuan, up 6.23% year on year, and performance exceeded our expectations.

Thermal power feed-in electricity has increased rapidly, costs have declined, and performance has increased dramatically. 1Q24 achieved 59.862 billion kilowatts of feed-in electricity, an increase of about 12.82% over the previous year. Among them, in terms of thermal power, feed-in electricity for coal engines was 45.934 billion kilowatts, up 10.69% year on year; feed-in electricity capacity for combustion engines was 4.978 billion kilowatts, up 26.94% year on year. The electricity consumption of the entire society in the first quarter was 2.3 trillion kilowatts, an increase of 9.8% over the previous year. High demand led to a rapid rise in thermal power generation. Affected by the good incoming water from the area where some of the company's hydropower units are located, the 1Q24 company's hydropower feed-in electricity capacity was 3,519 billion kilowatts, an increase of 9.46% over the previous year. In terms of electricity prices, the 1Q24 company's average feed-in tariff was RMB 476.35 per megawatt-hour (tax included), down about 2.73% from the previous year. We believe that the formal implementation of capacity electricity prices strengthens the stability of thermal power performance, and that tightening electricity supply and demand in some regions also provides some price rigidity for feed-in tariffs. Considering the significant year-on-year decline in the cost of thermal power, the average price of 5,500 kcal thermal coal in 1Q24 reached 901.74 yuan/ton in 1Q24, a decrease of 20% compared to 1128.91 yuan/ton in 1Q23. In particular, the company's thermal power plants are mainly located in the northern region, which is closer to coal mine resources. We judge that the company has fully benefited from falling fuel costs, which has led to a strong rebound in thermal power performance. We judge that the second quarter is the traditional low season for coal, and we are optimistic that falling coal prices will drive the company's thermal power performance to continue to improve.

Renewable energy generation continues to grow at a high rate, and we invest heavily in landscape projects. The company is vigorously developing the clean energy sector. At the end of 2023, the company was constructing 5.2 million kilowatts of new energy projects. In the total installed capacity of the company, clean energy accounted for 37.75% of the installed capacity. The company continues to advance the energy structure optimization and green transformation process. With the implementation and operation of the installed equipment under construction and the increase in the number of approved installations this year, 1Q24 maintained a high growth rate of clean energy feed-in electricity. In particular, against the backdrop of poor overall scenery and sunshine conditions and declining hours of use of new energy sources in 1Q24, wind power and photovoltaic feed-in electricity volumes were 4.319 billion kilowatts and 1,112 billion kilowatts, respectively, up 16.50% and 54.17% from the previous year. On April 27, the company issued a board announcement to review and pass the “Proposal on Investing in the Construction of 9 New Energy Projects, including the Shantou Nanao Lemen I Offshore Wind Power Expansion Project”. It plans to invest about 5.729 billion yuan to develop 9 wind power and photovoltaic projects. Considering that wind power and photovoltaic construction costs are still in a declining channel, the company's new energy installations are expected to continue to accelerate.

Financial expenses have declined, and interest rates have decreased the financial pressure on the company. The 1Q24 company generated financial expenses of 1.36 billion yuan, a year-on-year decrease of 10.44%, and the financial expenses ratio was 4.43%. Last year, the company added 11 billion perpetual bonds, and the balance of the company's perpetual bonds reached 46.2 billion yuan by the end of 2023. Considering that the LPR was lowered by another 25BP in February 2024, we believe that there is room for a further decline in the company's financial expenses ratio for the whole year, continuing to unleash the company's performance flexibility.

Profit forecast and rating: Based on the company's performance in the first quarter, taking into account that the 1Q24 coal price drop exceeded expectations and the electricity price drop was small, we raised the company's 2024-2026 net profit forecast to 44.69 billion yuan, 53.31, and 6.519 billion yuan respectively (previous forecasts were 32.78, 44.92, and 5.835 billion yuan, respectively). The current stock price corresponding to 2024-2026 PE was 13, 10, and 9 times, respectively, maintaining the “buy” rating.

Risk warning: coal prices fluctuate high, electricity prices fall more than expected, and new energy projects fall short of expectations