Incident: The company released its 2024 mid-year report. In the first half of the year, the company achieved revenue of 118.806 billion yuan, a year-on-year decrease of 5.73%; net profit to mother of 7.454 billion yuan, an increase of 18.16%; the Q2 company achieved revenue of 53.4 billion yuan, a year-on-year decrease of 12.05%; and realized net profit to mother of 2.858 billion yuan, a year-on-year decrease of 29.58%.

Q2 Coal power generation in a single quarter was squeezed by incoming water, and the number of hours used by photovoltaics increased sequentially. The feed-in electricity for 24H1 coal engine/gas engine/wind power/photovoltaic/hydropower/biogeneration was 1704/123.34/188.80/8.198/0.5/0.366 billion kilowatt-hours, respectively, with year-on-year changes of -3.19%/-4.14%/+12.53%/+74.24%/+52.67%/-19.44%, respectively. In Q2 alone, feed-in electricity volumes for coal engine/gas engine/wind power/photovoltaic/hydropower/biogeneration were 781.33/51.80/88.51/4.977/0.317/0.185 billion kilowatt-hours, respectively, with year-on-year changes of -9.65%/-7.28%/+1.8%/+74.57%/+20.23%/-29.29%, respectively. Green Electric's installed capacity Q2 increased dramatically. Among them, the new installed capacity of wind power and photovoltaics was 0.1854/1.2529 million kilowatts, respectively, corresponding to a month-on-month change of about -90/+105 hours of average utilization.

The profitability of the thermal power and wind power sectors declined in Q2 due to cost and number of hours of use, respectively. The total profit of 24H1 coal engine/gas engine/wind power/photovoltaic/hydropower/biopower generation was 39.8/5.7/40.3/1.245/0.052/-0.044 billion yuan, respectively. The year-on-year changes were +571%/+63%/+0.2%/+24%/+4402%/+4402%/loss increased 1620%, respectively.

In terms of single Q2, the total profit of coal engine/ gas engine/ wind power/ photovoltaic/ hydropower/ biopower generation was 11.55/0.34/16.16/0.875/0.047/ -0.039 billion yuan, respectively, with month-on-month changes of -59.12%/-93.66%/-33.06%/+136.49%/+840%/loss increased 680%; under this caliber, coal machinery/wind power/photovoltaics were 0.015/0.183/0.176 yuan/kilowatt-hour, respectively. The changes were -51.72%/-24.15%/+53.05%, respectively. Among them, due to seasonal heating, coal consumption for electricity supply to Q2 coal mills increased; compounded by a decline in grid electricity consumption, electricity depreciation was raised, and the profit level of coal-electricity consumption was reduced. The number of hours used by wind power is declining, squeezing its electricity profitability level.

Profit forecasting, valuation, and ratings: Taking into account that 1) due to abundant incoming water, the amount of feed-in electricity for thermal power was significantly squeezed by hydropower; 2) the company's integrated feed-in tariff declined year-on-year (the average online settlement price of the company's various operating power plants in China in the first half of 2024 was 498.70 yuan/megawatt-hour, down 3.21% year on year); 3) weak incoming wind, and the number of hours used by wind power declined. Based on the current market thermal coal price level and comprehensive feed-in tariff level, we lowered the company's 2024E-2026E net profit to 12.329/12.719/13.224 billion yuan (previous value was 16.366/16.729/17.048 billion yuan). The corresponding EPS is 0.79/0.81/0.84 yuan, respectively, and the corresponding PE is 10/10/9 times. Based on: 1) the determination of new energy transformation trends and 2) significant improvements in cash flow, we maintain the company rating as “buy”.

Risk warning: Demand for terminal electricity has declined; the progress of the transformation of new energy sources has fallen short of expectations; the implementation of the Coal Price Cooperation has fallen short of expectations; and the installed costs of wind power and photovoltaics have increased dramatically.