Incident Overview: On April 29, the company released its 2023 annual report. During the reporting period, it achieved operating income of 95.975 billion yuan, an increase of 19.68% over the previous year; net profit due to mother was 6.520 billion yuan, turning a year-on-year loss into a profit; the company plans to pay a cash dividend of 0.25 yuan per share to all shareholders, with a total cash dividend of about 51.42%. The company released its 2024 quarterly report. During the reporting period, it achieved operating income of 20.024 billion yuan, up 13.45% year on year; net profit to mother of 1,815 billion yuan, up 79.62% year on year; net profit after deducting non-return to mother of 1,758 billion yuan, an increase of 110.76% year on year.
Electricity consumption increased, and Q1 performance continued to recover: due to the low base effect caused by the 1Q23 public health incident, electricity consumption in Zhejiang Province increased 12.2% year on year in 1Q24, and thermal power generation increased 11.1% year on year. The company completed 38,290 million kilowatt-hours of thermal power generation in a single quarter, up 17.8% year on year. The growth rate was slightly higher than the growth rate of thermal power in the province, mainly due to the increase contributed by the two Yueqing Phase III units (2*1 million kilowatts) in 2023. Q1 Zhonglai achieved revenue of 1,288 billion yuan, a year-on-year decrease of 52.4%, and gross margin fell 20.4pct to -3.3%, dragging down the company's overall revenue performance; excluding revenue and costs from the consolidated table, Q1 achieved revenue of 18.735 billion yuan, an increase of 12.3% over the previous year, benefiting from the decline in coal prices since the beginning of the year, achieving gross profit of 1,911 billion yuan, a year-on-year increase of 1,272 billion yuan, and gross margin increased 6.4 percentage points to 10.2%. Considering that Yueqing Phase III will be put into operation in mid-2023, Q2 can still contribute year-on-year growth; at the same time, considering the trend in coal prices since March, volume increases and cost reductions are simultaneously increasing, and Q2 profits are expected to continue the month-on-month and year-on-year trend.
Shareholding in Nuclear and Fire showed impressive performance, with depreciation fluctuation performance: In 2023, the company achieved net investment income of 4.609 billion yuan, an increase of 13.10 billion yuan, an increase of 39.7%. Among them, participation in nuclear power contributed investment income of 1,701 billion yuan, an increase of 340 million yuan, an increase of 25.0%, accounting for 36.9% and 18.7% of current net investment income and total profit, respectively; in addition, the annual investment income of 2.150 billion yuan, an increase of 107.6%, respectively. Net income and total profit were 46.7% and 23.6%; 1Q24 achieved net investment income of 1,232 million yuan, an increase of 226 million yuan over the previous year, continuing the growth trend. In 2023, the company's estimated impairment of 597 million yuan (asset impairment of 433 million yuan, credit impairment of 163 million yuan) dragged down the release of results throughout the year.
The cash dividend exceeds 50%, and the dividend rate exceeds 4%: Considering the gains from China, the company's net cash flow from operating activities was drastically raised to 11.477 billion yuan in 2023. In the normal operating year, the company basically maintained a high dividend ratio. With the exception of 2021 and 2022, the company's cash dividend ratio in 2014-2020 was over 50%, and the 2023 cash dividend ratio reached 51.4%. The dividend rates calculated on December 29, 2023 and the date of publication of the annual report were 5.4% and 4.0%, respectively.
Investment advice: 1Q24, the company's electricity production is increasing, while benefiting from improved fuel costs, and performance continues to recover; participation in Fire and Nuclear is expected to continue to increase performance. According to changes in electricity volume, electricity prices, and investment income, the company's profit forecast is estimated to be 0.58/0.59 yuan (previous value 0.53/0.56 yuan) for 24/25, and 0.61 yuan for the new 26 years. The corresponding closing price of PE on April 29 is 10.7/10.5/10.2 times, respectively.
Referring to the company's historical valuation level, the company was given 12.0 times PE in 2024, with a target price of 6.96 yuan/share, maintaining a “careful recommendation” rating.
Risk warning: 1) Fluctuations in electricity demand; 2) rising fuel prices increase operating costs; 3) electricity market competition reduces feed-in tariffs; 4) supply restructuring suppresses unit output.