Incident: The company issued an asset transfer announcement. It plans to transfer 35% of the shares of Guangxi Yongsheng Petrochemical Co., Ltd. (“Yongsheng Petrochemical”) to Guangxi Financial Holdings Asset Management Co., Ltd., with a transfer consideration of 194 million yuan, which is comparable to the assessed equity value. After the transfer is completed, the company holds 14% of Yongsheng's shares and remains a participating company in Guangxi Energy.

Continued divestment of non-main business assets shows the company's determination to focus on the main business and vigorously expand and strengthen the power business. Since the Guangxi Investment Group optimized and integrated internal energy sector resources to establish Guangxi Energy Group in 2023. At the same time, after Guangxi Energy Group clearly proposed to focus on its main business, expand, strengthen and improve Guangxi Energy, Guangxi Energy quickly divested its non-main petrochemical business and focused on the main power business. In summary, in June 2023, the company announced plans to sell 2% of Yongsheng Petrochemical's shares, with an equity consideration of RMB 111 million. After the transfer was completed, the company's shareholding ratio in Yongsheng Petrochemical was reduced from 51% to 49%. The latter was no longer included in the company's consolidated statements, and the transaction was completed in November 2023. In November 2023, the company once again announced plans to sell 51% of Hengrun Zhubang's shares and 51% of Hengrun Petrochemical's shares. Using a listing method, the transaction price is comparable to the assessed value of the shares. The transaction was completed at the end of December 2023. In June 2024, the company announced once again that it plans to transfer 35% of Yongsheng Petrochemical's shares to the outside world at a consideration of 194 million yuan. At the same time, according to the company's announcement, the company will continue to divest its petrochemical assets in the future, demonstrating the company's determination to focus on its main business and vigorously expand and strengthen its power business.

It is worth noting that in breaking down the previous equity transactions, the counterparties were all subsidiaries of Guangxi Investment Group, which shows the Group's strong support for the company's development. The counterparty that sold 2% of Yongsheng Petrochemical's shares in June 2023 was Guangxi Financial Services Group. Guangxi Investment Group and Guangxi Energy Group held 60% and 20% of the shares respectively, and listed to sell 51% of Hengrun Zhubang and 51% of Hengrun Petrochemical's shares in November 2023. The delisting party was Guangxi Guangtou Zhengrun Development Group, which held 100% of the shares in Guangxi Energy Group, and the counterparty that sold 35% of Yongsheng Petrochemical's shares in June 2024 was managed by Guangxi Financial Holdings. Furthermore, in 2024, the chairman of Guangxi Energy Group became the chairman of a listed company, which fully demonstrated the determination of the autonomous region and the group to expand and strengthen the listed company. In March 2024, the company issued the “Notice of Resolutions of the 7th Meeting of the 9th Board of Directors”, which reviewed and passed the “Proposal on Election of the Chairman of the 9th Board of Directors of the Company”, and appointed Tang Danzhong, chairman of Guangxi Energy Group, as the chairman of the listed company until the end of the 9th board of directors (i.e. 2024-2026). We believe that the chairman of Guangxi Energy Group also serves as the chairman of a listed company, fully demonstrates the importance that the Group attaches to listed companies, and also facilitates the Group to carry out related work to substantially support the company's development.

Benefiting from abundant incoming water and falling coal prices, the company's performance is expected to improve in 2024. The company has 858,600 kilowatts of hydropower installed, mainly in the Hejiang, Guijiang, and Hongshui River basins. The average annual contribution of the hydropower generation business in 2019-2023 was 0.9-230 million yuan. Hydropower achieved only 90 million yuan in net profit due to poor water supply in 2023. However, there was a lot of rainfall in Guangxi in the first half of this year. According to reports from the Guangxi Hydrology Center, the water level in the Qianjiang, Xunjiang, Hongshui River, and Liujiang river sections is currently rising rapidly. Some regions are even experiencing flood control warnings. Heavy rainfall is expected to make the company's hydropower profit significantly year-on-year upgrade. In terms of thermal power, the average spot price of thermal coal since the beginning of 2024 is about 880 yuan/ton, down about 15% from last year, while the annual electricity price in the Guangxi Autonomous Region in 2024 is 0.4482 yuan/kilowatt-hour (excluding capacity electricity prices, Guangxi capacity electricity price is about 0.04 yuan/kilowatt-hour). Coupled with the 16% increase in electricity prices after capacity electricity prices, it is almost equivalent to the company's profit in the thermal power sector this year.

The Group promises asset injection+continued growth of Guangxi Haifeng, and the company is expected to grow strongly in the future. On the one hand, as the only listing platform under Guangxi Energy Group, the company is expected to benefit from the trend of energy asset integration within the autonomous region. In 2018, Guangzhou Investment Group signed a cooperation agreement to inject its energy assets and energy indicators, then the group carried out its promise to inject Qiaogong hydropower in 2020 and seabreeze indicators in 2023. It is expected that the remaining high-quality assets under the Group will also be injected into listed companies in the future, bringing continued growth to the company. On the other hand, the company's 1.8 GW offshore wind power index is expected to be put into operation one after another in 2024-2026, bringing a continuous increase in the company's performance. Furthermore, the Guangxi Autonomous Region plans to connect 3GW of offshore wind power to the grid during the 14th Five-Year Plan period and approve the commencement of construction of 5G7.W In the context of continued approval of offshore wind power in the Guangxi Autonomous Region in the future, the company is expected to continue to grow.

Profit forecast and valuation: We maintain the company's 2024-2026 net profit forecast of 1.94 billion yuan, 3.95 million yuan, and 634 million yuan, respectively, with year-on-year growth rates of 11290%, 104%, and 60.4%, respectively. The PE corresponding to the current stock price is 26 times, 13 times, and 8 times, respectively. Considering the scarce integrated factory network assets and the company's high future growth, the “buy” rating is maintained.

Risk warning: New energy installations have fallen short of expectations, incoming water fluctuates, and rising coal prices have exceeded expectations.