Core views:

The 23-year results were restored to 490 million yuan, and the profit for the first quarter exceeded expectations by 200 million yuan. The company released its 2023 annual report, achieving revenue of 7.089 billion yuan (+71.1% year-on-year) and net profit of 490 million yuan (compared with the same period last year). The high increase in revenue takes into account the impact of the Fengsan Power Plant being put into full production in the second half of 2022 and the high increase in feed-in electricity; the sharp improvement in performance is mainly due to increased revenue and lower unit coal costs. 2024Q1's revenue was 1,694 million yuan, net profit attributable to mother was 204 million yuan (0.6 billion yuan in the same period last year), gross margin increased 11 percentage points year over year, revenue decreased 0.4% year over year, and feed-in electricity volume was +0.39% year over year. The significant improvement in profit is expected to result from a continued decline in coal consumption costs.

The annual feed-in power generation was 15.9 billion kilowatt-hours, a significant increase of 69% over the previous year. At the end of 2023, the company's holding installed capacity was 3.86 GW, thermal power 3.4 GW, hydropower 0.1 GW, and PV 0.36 GW; 0.25 GW of PV was added. Feed-in electricity reached 15.9 billion kilowatt-hours in 2023, of which 155, 2.57, and 165 million kilowatt-hours for thermal power, hydropower, and photovoltaics were respectively; the average feed-in price was 0.498 yuan/kilowatt hour (+1.6% year-on-year). The 2024Q1 completed the feed-in power supply of 3.848 billion kilowatt-hours, which is basically the same.

Coal and electricity joint ventures cooperate to clean coal power, and the installed capacity of the company increased by nearly 60% in 2025. In May 2023, the company signed a “Project Investment Cooperation Framework Agreement” with Shaanxi Coal Group. The two sides will cooperate to build 2 1GW clean coal machines in Shanggao Phase I and 2 1GW clean coal machines in Shanggao Phase II. The company controlled the construction of 2 Shanggao Phase I coal mills in September 23, and is expected to be put into operation in 25; the 49% shareholding of 2 Shanggao Phase II coal machines was approved in April '24. After the holding is put into operation in 2025, the company's thermal power installation will increase to 5.4 GW, an increase of 58.8% over the current level.

Profit forecasting and investment advice. The company's net profit from 2024 to 2026 is estimated to be 731, 7.96, and 1,089 million yuan, respectively, and PE corresponding to the latest closing price is 14.03, 12.88, and 9.41 times, respectively. Thermal power performance is expected to continue to improve, and the installed capacity of the project has increased by 60%. Referring to peer valuation, taking into account the company's high flexibility in future installed capacity growth, a PE valuation of 15 times 2024 was given, corresponding to a reasonable value of 11.24 yuan/share, maintaining a “buy” rating.

Risk warning. Fluctuations in coal prices; decline in utilization hours; project construction progress falls short of expectations, etc.