Incident Overview: On April 29, the company released its 2023 annual report. During the reporting period, it achieved operating income of 4.523 billion yuan, a year-on-year decrease of 1.62% (repeated); net profit to the mother of 627 million yuan, a year-on-year decrease of 19.16% (as restated); the company plans to distribute cash dividends of 0.07 yuan per share to all shareholders, with a total cash dividend of 168 million yuan, a cash dividend ratio of about 26.84%. The company released its 2024 quarterly report. During the reporting period, it achieved operating income of 1,173 billion yuan, an increase of 12.10% over the previous year; net profit to mother of 173 million yuan, an increase of 42.88% year on year; net profit after deducting non-return to mother was 162 million yuan, an increase of 42.76% year on year.

The hydropower growth rate in 1Q24 was corrected, and the growth rate of ocean wind was fully realized: in 2023, the company added a total of 875,700 kilowatts of installed capacity, with cumulative installed capacity reaching 5.2538 million kilowatts. Among them, Land Wind, Sea Wind (Taizhou No. 1 put into operation), and PV added 14.7, 30, and 429,000 kilowatts respectively, up 21.5%, 49.7%, and 21.9% year on year; however, considering the decline in hydropower output and new installations mainly concentrated in 4Q23, the company completed a cumulative total of 8.432 billion kilowatt-hours of power generation, a year-on-year decrease of 0.58%, of which, Hydropower, land wind, sea wind, and photovoltaics were -19.7%, +23.5%, +4.1%, and +13.6%, respectively. The 1Q24 company completed 2,228 billion kilowatt-hours of power generation, an increase of 22.5% over the previous year. Among them, hydropower, land wind, sea wind, and photovoltaics increased 6.1%, 13.3%, 80.7%, and 5.7% year-on-year respectively. Sea wind power was fully realized, but because the project implemented the benchmark electricity price for coal-fired power in Zhejiang Province, which was lower than the average electricity price, we calculated that Q1's electricity revenue (power generation caliber, same below) was 0.5170 yuan/kilowatt-hour, down 4.81 minutes/kilowatt-hour from year to year; electricity cost was 0.2669 yuan/kilowatt-hour, down 1.55 minutes/kilowatt-hour from year to year; in terms of profitability, Q1's comprehensive gross margin was 48.4%, down 1.64 pcts year on year.

The decline in expenses during the period boosted performance: With the capital raised in a fixed increase in 2023, the company adjusted its financial structure, and the balance ratio decreased by 3.89pct year-on-year to 65.46% at the end of 2023. Financial expenses for 1Q24 decreased by 22 million yuan year on year to 246 million yuan, expenses for the single quarter decreased by 19 million yuan year on year, and the cost ratio for the period decreased by 4.9 pct year on year to 25.2% year on year. The decline in expenses drove the company's Q1 operating profit to increase by 62 million yuan to 276 million yuan year on year, and the operating profit margin increased 3.1 pct to 23.5% year over year.

Zhejiang Sea Wind may be surprised. Looking forward to mid-year dividends in 2024: In February 2024, the Zhejiang Provincial Committee issued the “Notice on Issuing Zhejiang Province's Effective Investment Policy in 2024”. The “Notice” requires “competitive allocation methods to promote wind power “to be fully developed” and increase the deep-sea wind power demonstration pilot efforts”; in April, the company successfully won the bid for the Zhejiang Xiangshan No. 4 (750,000 kilowatt) seabreeze project. If Zhejiang accelerates seabreeze development in the province and adjusts the “14th Five-Year Plan”, the company is expected to fully benefit from the “14th Five-Year Plan”. advantages. In terms of shareholder returns, the company formulated a 2024 mid-term dividend plan. It plans to increase the interim dividend once when the 2024 semi-annual report or third quarter report is disclosed. The amount of the cash dividend shall not be less than 10% of the net profit returned to mother for the corresponding period.

Investment suggestions: Water and electricity output restoration, and new wind and light installations to help increase performance in 24 years. Considering the amount of electricity, electricity prices, and the pace of installation, the profit forecast for the company is estimated to be 0.45/0.55 yuan (the previous value was 0.42/0.54 yuan) in 24/25, and the EPS for the new 26 years will be 0.60 yuan, corresponding to the closing price of PE on April 30, 16.7/13.7/12.5 times, respectively. Considering the company's new energy growth and performance flexibility, the company was given 20.0 times PE in 2024, corresponding to a target price of 9.00 yuan, to maintain a “careful recommendation” rating.

Risk warning: 1) Incoming water from the basin is running out; 2) falling demand suppresses electricity consumption; 3) Market transactions and electricity price fluctuations; 4) policy adjustments such as fiscal taxation.