Description of the event
The company released the 2023 annual report and the 2024 quarterly report: the company achieved operating income of 95.975 billion yuan, +19.68% year on year; net profit due to mother of 6.520 billion yuan, turning a year-on-year loss into profit; net profit after deducting non-return to mother of 6.160 billion yuan, turning a year-on-year loss into profit; the company plans to pay a cash dividend of 0.25 yuan/share in 2023, with a cash dividend ratio of about 51.42%. The company achieved operating income of 20.024 billion yuan in the first quarter of '24, +13.45% year on year; net profit to mother of 1,815 billion yuan, +79.62% year on year; net profit after deducting non-return to mother of 1,758 billion yuan, +110.76% year on year.
Incident reviews
The company's overall performance for the first quarter of '23 and '24 was in line with expectations. The implementation of production, cost-side improvements, and growth in return on investment drove the company's performance improvement.
The rapid increase in profitability in the first quarter of '24 was mainly due to cost-side improvements. In the first quarter of '24, the company's gross margin reached 9.34%, an increase of 5.03 percentage points; during the same period, the average price of Qingang's final coal Q5500 was 901.94 yuan/ton, down 20.12% year on year. The sharp increase in the company's profitability was mainly due to improvements on the upstream raw materials side.
The increase in electricity consumption in the province and the commissioning of the third phase of Ledian led to a high increase in the company's power generation capacity. In the year 23 and the first quarter of '24, the electricity consumption in Zhejiang Province was +6.8% and +12.2%, respectively. The growth rate of electricity consumption in the same period was +6.7% and +9.8%; in the first quarter of '24, the thermal power generation in Zhejiang Province was +10.8%, and the country's thermal power generation was +6.6% year-on-year. In June '23, the third phase of the Ledian Project was put into operation, with a scale of 2 million kilowatt units. As a result, the company's share of the province's integrated coal power installed capacity increased to 57.6%. In '23 and the first quarter of '24, the company achieved power generation capacity of 163.24 and 38.35 billion kilowatt-hours, +7.4% and 17.79% year-on-year; feed-in capacity was 1545.1, 36.38 billion kilowatt-hours, or +7.53% and 17.99%.
The steady increase in investment income was compounded by an increase in performance. The company's cash flow was abundant, and the planned dividend ratio for fiscal year 23 reached more than 50%. The company's investment income in joint ventures and joint ventures reached 4.236 billion yuan in 2023, +44.73%; operating cash flow increased to 11.477 billion yuan, an increase of 11.253 billion yuan over the previous year, and the company plans to reach 51.4% of cash dividends in 2023. The company's investment income in joint ventures and joint ventures in the first quarter of '24 was 1,229 billion yuan, up 2.048 billion yuan year on year; operating cash flow was 1,796 billion yuan, up 3,078 billion yuan year on year; abundant cash flow is expected to continue to support the dividend ratio.
Electricity consumption is expected to continue to increase, and the company's performance is expected to increase in the long term under the transformation and upgrading of “thermal power+new energy”. Zhejiang Province is the core area of the layout of key industries for new quality productivity. 5G base stations, new energy vehicle manufacturing, and photovoltaic industries all rank among the largest in the country. Under the 14th Five-Year Plan, electricity consumption in the province is expected to continue to rise with economic growth and the deepening layout of the new quality productivity industry. In '23, the company acquired 9.7% of Zhonglai shares and obtained control of Zhonglai shares. Zhonglai shares are mainly engaged in the manufacture of photovoltaic modules and related integrated products, which may bring new growth momentum to the company in the future.
Investment advice
The company is a local thermal power leader in Zhejiang Province. Its performance improved significantly in the first quarter of '23/24, and improvements in the new energy related business can be expected. It is expected that the commissioning of production and the high increase in local electricity consumption will continue to amplify the flexibility of subsequent performance. The company's 2024-2026 EPS is expected to be 0.57\ 0.61\ 0.70 yuan respectively, corresponding to the company's closing price of 6.14 yuan on May 8, and the 2024-2026 PE will be 10.7\ 10.0\ 8.8 times, respectively. For the first time, coverage will be given a “holdings increase-A” rating.
Risk warning
Demand for electricity falls short of expectations; there is a high risk of electricity price fluctuations; risk of fluctuations in upstream raw material prices; China's performance falls short of expectations.