Earnings for the first half of the year are expected to fall year over We expect the company's profit for the first half of this year to fall 7.9% year on year to 1.64 billion yuan (RMB, same below). In the first half of the year, the company's wind power generation fell 4% year on year, mainly due to the year-on-year decrease in wind speed, while photovoltaic power generation increased 58% year on year. The increase was due to the addition of 0.9 gigawatts of PV installed last year. However, photovoltaics accounted for only 7% of the total power generation, so the company's total power generation remained flat in the first half of the year. Furthermore, we expect the company's wind/photovoltaic feed-in electricity prices to drop by about 3%/2% year-on-year in the first half of the year. The above factors contributed to weak earnings in the first half of the year.
The 2024/25 electricity generation forecast was lowered slightly. Looking ahead to the second half of the year, we reaffirm that under current policy guidance, there is room for reduction in the utilization rate of large-scale wind and light projects with better resources. We believe that the company's new installed capacity needs to be accelerated every year to ensure that the annual power generation capacity can maintain a year-on-year increase of more than 5% while the utilization rate of existing projects declines. However, in a scenario where wind speed was weak in the first half of the year and utilization rate was still under downward pressure in the second half of the year, we lowered our 2024/25 power generation forecast by 1.7%/1.9%. Currently, we expect the company's total power generation to increase by 1.3%/6.2% in 2024/25.
The net debt ratio is lower than that of peers, and there is still room to speed up installation and increase dividends. The company's forecast net debt/total share capital for 2024 is 144%, which is lower than the average of the peers we cover. We think the company can consider: 1) In terms of installation, the company still has room to increase leverage for acquisitions and speed up the installation process; 2) The company's current expected dividend ratio of 23% is lower than 30-50% of its peers. If free cash outflow remains at the level of 2023, the company still has room to increase the dividend ratio. As for the above plan, we think it is more likely to choose one of the two. The management will give an opinion on the interim report of the results.
Profit forecasts were lowered to reflect more conservative hourly usage expectations. In anticipation of a slowdown in the growth rate of power generation and a year-on-year decline in average electricity prices, we lowered our 2024/25 earnings forecast per share by 6.6%/7.2%.
The company's profit is expected to fall 2.3% year on year in 2024, and is expected to rise 7.9% year on year in 2025 as utilization hours stabilize. We continued to base our valuation on 5.7 times the 2025 forward price-earnings ratio (average of the past five years), and lowered our target price to HK$2.02 (previously HK$2.21). Stay neutral.