Core views:
The amount of electricity from incoming water is low, and the return on investment is growing steadily. In 2023, the company achieved net profit of 27.239 billion yuan (+14.8% year-on-year after adjustment), and Wu Bai injected an increase in the company's revenue performance. However, financial expenses rose to 12.556 billion yuan due to the merger and additional liabilities. The assessment of R&D investment led to a sharp increase in R&D expenses to 789 million yuan, and the increase in storage area maintenance expenses (non-operating expenses) for power plants. 2024Q1 achieved net profit of 3,967 billion yuan (+9.8% year over year), mainly due to higher electricity prices to make up for the decline in electricity consumption, a 55.7% year-on-year increase in investment income, and a year-on-year decrease of 300 million yuan in financial expenses, which is expected to drop by more than 1 billion yuan in 24 years. In 2023, the company plans to pay a dividend of 0.82 yuan per share, with a total dividend of 20.064 billion yuan, and a dividend rate of 73.7%.
Incoming water returned to a high level of water storage, and the second quarter ushered in an inflection point in electricity consumption. According to the business announcement, the company's power generation capacity was 276.3 billion kilowatt-hours in 2023 (+5.34% year over year). The company plans to achieve 307.4 billion kilowatt-hours of power generation in 2024 under normal water conditions, which can increase power generation by more than 30 billion kilowatt-hours. Although the company's power generation volume fell 5.1% year on year in the first quarter of 2024, the energy storage growth rate increased again. It is estimated that energy storage was 6.2 billion kilowatt-hours higher at the end of March. The second quarter will usher in an inflection point in electricity production and a high level of normal energy storage since April..
With improved performance and stable dividends, the path to DDM is still smooth. The electricity base for the past 23 years has been low. El Niño has driven the recovery of incoming water, and water storage has already been restored. The advantages of joint scheduling will be shown, and electricity capacity is expected to increase dramatically. According to the company's annual report, it promises a 15% dividend rate. If dividend expectations are stable, DDM can be used for valuation. In addition, the company's power plants are promoting capacity expansion, joint drainage and power generation, leading the development of a water scenery base in the lower reaches of the Jinsha River, promoting savings and construction, and reducing depreciation and financial expenses to release profits. Water and electricity taps still have room to grow.
Profit forecasting and investment advice. The company's net profit for 24-26 is estimated to be 352/369/39 billion yuan respectively, or 18/17/16 times PE corresponding to the latest closing price. Incoming water has improved and performance has been restored, and the 14th Five-Year Plan promised a 70% dividend rate. As a hydroelectric faucet, with reference to comparable companies, the company was given a PE valuation of 20 times in 24 years, corresponding to a reasonable value of 28.74 yuan/share, maintaining a “buy” rating.
Risk warning. Fluctuations in incoming water; risk of feed-in tariff adjustments; risk of investment returns falling short of expectations.