Key points of investment

The lower-than-expected 2024Q2 performance was affected by a number of factors:

20241H achieved revenue of RMB 118.806 billion, down 5.73% year on year; net profit to mother was RMB 7.775 billion, up 19.8% year on year; earnings per share was RMB 0.40, and revenue from 2024Q2 was RMB 53.4 billion, down 12% year on year; net profit to mother was approximately RMB 2.9 billion, down 30% year on year. The company's Q2 performance fell short of expectations due to many factors: 1) thermal power plant maintenance, hydropower squeezing led to a decrease in thermal power generation; 2) the end of the Q2 heating season, heating contributions decreased, and coal consumption increased, leading to a month-on-month decline in the marginal contribution of coal engines; 3) poor wind resources in the second quarter led to a decline in wind power profits; 4) Singapore's high electricity prices and profit base for the same period last year. 5) Some research projects began to gradually enter the implementation phase in the second quarter, and R&D expenses and management expenses increased month-on-month.

Electricity restrictions for new energy sources increased in the first half of the year, and electricity prices declined, and the target of adding 10 GW of installed capacity remained unchanged throughout the year:

In the first half of 2024, the company's wind power limit rate was 5.56%, up 1.16 percentage points year on year; the PV power limit rate was 6.05%, up 3.42 percentage points year on year; the average settlement price for wind power in the first half of 2024 was 511.89 yuan/megawatt-hour, down 6.04% year on year; the average settled PV electricity price was 426.98 yuan/megawatt-hour, down 9.77% year on year. According to the revenue standards of the company's new energy investment decisions, the yield of new projects is currently basically stable, and the company maintains the annual target of adding 10 GW of installed capacity unchanged.

Operating cash flow has improved dramatically, which is beneficial to support annual dividend payouts:

The company's net operating cash inflow in the first half of the year reached RMB 23.603 billion, an increase of 71.53% over the previous year. As of June 30, 2024, the company's cash balance reached RMB 20.3 billion. The company has maintained the tradition of dividends since its listing. The company's articles of association also stipulate that under normal profit conditions, the cash dividend ratio shall not be less than 50%. It is expected that the company's cash flow will improve for the whole year.

The target price was updated to HK$5.69, and a buy rating was given:

We updated the company's target price to HK$5.69, which is equivalent to 7.2 and 6.3 times and PE in 2024 and 2025. There is room for a 23% increase in the target price compared to the current price, giving it a buy rating.