Description of the event

The company released its 2023 annual report and 2024 quarterly report: in 2023, the company achieved operating income of 23.461 billion yuan, a year-on-year decrease of 0.51%; realized net profit to mother of 7.638 billion yuan, an increase of 5.58% over the previous year. In the first quarter of 2024, the company achieved operating income of 4.420 billion yuan, an increase of 3.58% over the previous year, and realized net profit of 1,065 billion yuan, an increase of 17.25% over the previous year.

Incident comments

Incoming water is under pressure and electricity consumption is under pressure, and the performance of cost reduction and efficiency has been steady throughout the year. In 2023, due to the continued depletion of incoming water, the company's annual cumulative power generation capacity reached 107.062 billion kilowatt-hours, a year-on-year decrease of 4.04%, but the decline narrowed again by 1.77 percentage points from the previous three quarters. Electricity prices, due to the continued tightening of electricity supply and demand in Yunnan Province, the company's comprehensive settlement electricity price in 2023 reached 0.2476 yuan/kilowatt-hour, an increase of 2.96% over the previous year. The increase in electricity prices has effectively relieved the pressure on electricity volume caused by dry incoming water. The company achieved annual revenue of 23.461 billion yuan, a decrease of 0.51% over the previous year. The company's annual gross margin was 56.36%, not pressured by the decline in revenue and expansion of scale. The main reason was the depreciation of some of the company's hydroelectric power units and the increase in the share of the high-margin photovoltaic business. The company's annual gross profit reached 13.224 billion yuan, an increase of 0.66% over the previous year. In addition, the company continued to promote the replacement of high-interest stock loans. Financing costs decreased by 60 basis points compared to the same period last year. Thanks to this, the company's financial expenses were further optimized to 2,730 billion yuan, a decrease of 14.14% over the previous year. Overall, under the influence of the company's continued efforts to reduce costs and increase efficiency, the company achieved net profit of 7.638 billion yuan in 2023, an increase of 5.58% over the previous year.

The increase in electricity prices relieved the pressure on electricity consumption, and the first quarter's performance was excellent. In the first quarter of 2024, the company completed 16.226 billion kilowatt-hours of power generation, a year-on-year decrease of 7.17%. Of these, hydropower generated 15.125 billion kilowatt-hours, a decrease of 11.90% over the previous year.

The main reasons for the year-on-year decrease in the company's power generation capacity were: 1) large-scale production of new energy sources in Yunnan Province, where new energy generation capacity increased by 11.379 billion kilowatt-hours. Thermal power generation in the province increased by 1,907 billion kilowatt-hours over the same period last year, and thermal power and new energy sources squeezed hydropower generation space; 2) Incoming water from the Lancang River Basin remained flat year on year in the first quarter. The two major reservoirs, Xiaowan and Nuozadu, undertook power grid system adjustment tasks. Cascade energy storage was not fully released, and cascade energy storage increased 4.4 billion kilowatt-hours year on year. Due to the impact of water storage, the company's hydropower generation capacity has decreased. Despite the year-on-year decline in hydropower generation, new energy power generation achieved rapid growth. Wind power generated 163 million kilowatt-hours in the first quarter, up 13.99% year on year, while photovoltaics generated 938 million kilowatt-hours, up 458.33% year on year. Although electricity consumption is under pressure, in addition to the rise in electricity prices in the province due to the tight electricity supply and demand situation in Yunnan Province, electricity prices rose significantly in the first quarter due to the impact of high electricity prices in Sichuan and the increase in the share of electricity remaining in Yunnan during the dry season. As a result, the company achieved operating income of 4.420 billion yuan in the first quarter, an increase of 3.58% over the previous year. Thanks to the stability of hydropower and new energy costs, the company's gross margin increased 1.74 percentage points to 51.72% year on year, and the company continued to optimize its debt structure. Financial expenses for the first quarter were 682 million yuan, a decrease of 5.80% year on year. As a result, against the backdrop of continued revenue and cost recovery, the company achieved net profit of 1,065 billion yuan in the first quarter, an increase of 17.25% over the previous year.

Investment advice: According to the latest financial data, we adjusted the company's profit forecast. The company's 2024-2026 EPS is 0.49 yuan, 0.53 yuan, and 0.60 yuan respectively, and the corresponding PE is 19.58 times, 18.03 times, and 15.93 times, respectively, maintaining the “buy” rating.

Risk warning

1. The risk of market electricity price fluctuations;

2. The risk of incoming water falling short of expectations.