Key points of investment

Incident: The company released its 2024 semi-annual report. In 2024, H1 achieved operating income of 118.806 billion yuan, -5.73%; net profit to mother of 7.454 billion yuan, +18.16% year over year; net profit after deducting non-return to mother of 7.18 billion yuan, +28.87% year over year. Among them, the company achieved revenue of 53.439 billion yuan in Q2 2024, or -12.05%; net profit attributable to mother and net profit excluding non-return to mother was 2.858/2.802 billion yuan, respectively, or -29.58%/-21.35%.

The fall in coal prices fixed the profits of thermal power, and the decline in electricity volume suppressed performance growth.

In 2024, H1 coal prices showed an overall downward trend. The company actively grasped the market window, optimized the coal storage structure, and effectively controlled fuel costs in the thermal power business. In 2024 H1, the company's cumulative unit price of imported coal excluding tax was RMB 1010.32 per ton, a significant decrease of 11.20% over the previous year. However, despite significant improvements on the cost side, due to major hydropower generation and unit maintenance in the first half of the year, the number of hours used by H1's coal-fired units fell 66 hours year on year in 2024. The coal engine and gas engine sectors achieved feed-in electricity consumption of 1,704 and 12.334 billion kilowatt-hours, respectively, reducing 3.19% and 4.14% year over year, respectively, putting a certain strain on the thermal power sector's performance growth. In 2024 H1, the company's coal and engine sectors achieved pre-tax profits of 3.98 billion yuan and 570 million yuan respectively, up 571% and 63% year-on-year. Looking ahead to H2, we believe that the peak of electricity consumption in Q3 is expected to drive the company's thermal power sector to increase electricity capacity, thereby driving the release of performance.

Poor wind conditions and lighting affect the performance of new energy sources, and the increase in installed capacity drives an increase in profit contributions.

In 2024 H1, due to poor conditions such as wind and lighting, the number of hours used by the company's new energy units declined year on year. Among them, wind power and photovoltaics decreased by 53 and 14 hours, respectively. However, due to the company's vigorous promotion of green and low-carbon development and rapid growth in installed capacity, the company still achieved a large year-on-year increase in wind power and photovoltaic power generation in the first half of the year. Among them, wind power achieved 18.88 billion kilowatt-hours of feed-in electricity, an increase of 12.53% over the previous year; photovoltaics achieved 8.198 billion kilowatt-hours of feed-in electricity, an increase of 74.24% over the previous year. Overall, in the first half of the year, the company's wind power and photovoltaics achieved pre-tax profits of 40.3 billion yuan and 1,245 million yuan respectively, with year-on-year increases of 0.06 billion yuan and 243 million yuan respectively; among them, single-Q2 wind power and PV achieved pre-tax profits of 16.16 and 875 million yuan respectively, with year-on-year changes of -23% and +33%, and wind power profits declined significantly.

The cash flow situation has improved markedly, and the balance ratio continues to decline.

In 2024 H1, the net cash flow from the company's operating activities reached 23.603 billion yuan, a sharp increase of 71.54% over the previous year. This was mainly due to the year-on-year increase in profit in the first half of the year and the year-on-year decrease in the net capital occupied by operating accounts receivable and payables. Looking at the balance ratio, as of 2024 H1, the company's balance ratio declined further to 68.05%, a decrease of 0.28 pct from the end of 2023, mainly due to a decrease in long-term loans and accounts payable. Considering that the company seizes the market window, reduces capital costs through measures such as issuing ultra-short-term financing notes on a rolling basis, and gradually optimizes the debt structure, we believe that the company's financial situation may improve further in the future.

Profit forecast: The company is the leading thermal power and green power operator in the country. Considering the current low level of coal price fluctuations and the surplus of water squeezing thermal power output in the first half of the year, we predict that the company will achieve net profit of 12.082, 13.213, and 14.142 billion yuan respectively in 2024-2026, corresponding to PE 9.7, 8.8, and 8.3 times, respectively. In terms of dividend rate, assuming that the company's dividend ratio for 2024-2026 is 50%, corresponding to the closing price on August 8, 2024, the company's dividend rates are 4.15%, 5.94%, and 6.50%, respectively. Give it a “buy” rating.

Risk warning: the risk of a sharp rise in coal prices; the risk of a sharp rise in the installed cost of new energy sources; the risk of falling feed-in tariffs; the risk of new energy installations falling short of expectations.