High quality hydropower standards with high ROE, high dividends, and plenty of FCFE have reached the hydropower listing platform under the Datang Group of Guiguan Electric Power. As of the end of 2023, the total installed hydropower capacity was 10.24 GW, of which 89.8% were located in Guangxi Province. In the non-extreme flood year of 2019-2023, the company's average ROE was 15.6%, higher than Changjiang Electric Power's 15.3%; the company's average dividend ratio in 2019-2023 was 81%, higher than that of Changjiang Electric Power's 74%. The company's free equity cash flow (FCFE) is abundant. We estimate the company's dividend potential for 2024-2025 to be over 90%, and 100% in the 15th and later periods. Since the end of 2022, the company's value has not been fully exploited by the market, and the current configuration time has arrived. We expect the company's net profit from 2024-2026 to be 29.18/30.79/3.287 billion yuan, corresponding EPS of 0.37/0.39/0.42 yuan. Referring to the wind consensus forecast of the comparable company 2024E PE, the wind forecast is 17.3x. Considering that the company's ROE and dividend ratio is higher than most comparable companies, the company will be given 23x2024E PE, corresponding to a target price of 8.51 yuan, covering a “buy” rating for the first time.

Stock hydropower profits are expected to continue to rise. The integrated water and landscape growth can be expected in Guangxi Province to cancel the hydropower concession policy in 2021. In 2023, the company's feed-in tariff price for hydropower in Guangxi Province was 0.218 yuan/kilowatt-hour, which has rebounded to slightly higher than the 2017 level before the price reduction cycle. If there are no major changes in the policy, the company's hydropower feed-in tariffs are expected to stabilize. We estimate that the depreciation maturity of the 145/155/165 company's hydropower plant is 431/305/304 million yuan. The company's financial expenses were reduced by an average of 122 million yuan year-on-year in 2019-2023. Capital repayment is driving down interest rates on superimposed loans, and there is still room for decline in financial expenses. In terms of growth, the company focuses on integrated water and landscape development. In 2019-2023, the CAGR of new energy installed capacity is 39%. In 2024-2035, we expect to add 1 GW of new energy installed capacity every year. The electricity supply and demand in Guangxi Province are tight and the integrated development of water and landscape is more guaranteed.

ROE and dividends are at the forefront of the industry. Abundant FCFE supports high dividends compared to Capex's exclusion of the crown and extreme values of comparable hydropower. The company's ROE and dividends are at the forefront of the industry. Cash flow is abundant, with a net present ratio of 2.4 in 2019-2023. In 2021/2023, the company's net profit to mother was -38%/-62% compared to high coal prices and severe depletion of incoming water, but the company increased the dividend ratio to 87%/129% to guarantee a high level of dividends. We estimate the company's dividend potential for 2024-2025/2026-2035 under a full caliber capital expenditure of 5 billion dollars to support 1GW of new energy installations and technical reforms every year. Even with a dividend of about 70% from Benchengdian, the company's annual remaining cash flow can leverage an additional 2.3-7.6 billion yuan of full investment under 70% leverage. By the end of '23, the company's balance ratio was only 55.4%, and the loan interest rate was only 2.6%. There is plenty of room and advantages in debt financing.

Risk warning: Incoming water falls short of expectations, capital expenses/new project commissioning time deviates from expectations, and coal prices are higher than expected.