The recovery of incoming water led to the company's profit growth in the first half of the year. Wind power used Q2 to pressure 1H24 to achieve operating income/net profit of 1.235/0.287 billion yuan (net profit to mother was at the upper middle level of 0.275-0.295 billion yuan in the company's performance forecast), +14.1%/+18.1% year-on-year, of which 2Q24's revenue/net profit to mother was +0.5%/-17.6% year-on-year to 0.73/0.235 billion yuan. The main reasons for the year-on-year decline in 2Q24's net profit to mother were: 1) -11% of the feed-in electricity price of hydropower, or due to changes in the electricity capacity structure of different power plants; 2) the number of hours used by wind power was -16% year-on-year due to poor wind. We temporarily maintain the company's 2024-2026 net profit forecast of 0.69/0.71/0.77 billion yuan, corresponding EPS of 0.43/0.44/0.48. Referring to comparable company's 2024E PE Wind consensus forecast of 14.8x, we are optimistic about the ability of wind power feed-in electricity prices to rise against the trend, and give the company 16x 2024E PE, corresponding to a target price of 6.85 yuan (previous value 6.97 yuan), and maintain a “buy” rating.

1H24 hydropower net profit was +51% YoY, 2Q24 wind power utilization hours were -16% due to incoming water remediation, 1H24's hydropower feed-in capacity was +11% to 2.406 billion kilowatt-hours, of which 2Q24 was +10% to 1.671 billion kilowatt-hours, and the company's hydropower 1H24 net profit was +51% to 0.168 billion yuan YoY. Most of the company's hydroelectric power is connected to the Internet using approved electricity prices, so the 2Q24 company's hydropower feed-in price was -11% to 0.251 yuan/kilowatt-hour (tax included), mainly due to the increase in feed-in power weight for relatively low electricity price hydropower stations. 2Q24's wind power feed-in electricity volume was -7% to 0.526 billion kilowatt-hours, mainly due to the number of hours used -16%, but the company's wind power feed-in electricity price was still +5% to 0.572 hours compared to the same period last year.

Due to the increase in PV installed capacity, although 2Q24's PV usage hours were -16% year-on-year, feed-in electricity usage was +116%. 1H24's net profit for new energy sources was -1% year-on-year to 0.22 billion yuan.

The Group's high-quality thermal power assets are being injected soon. After the injection, it is expected to bring a double rise in profit valuation. Changle's injection has already started. The net profit for electricity in 2023 is 7 points, which is comparable to that of integrated coal and electricity companies. In 2024-2026, the first phase of Changle uses an hourly contract to guarantee no less than 5,000 hours. Hunan Province is an energy recipient and terminal. High coal prices support the margins of thermal power prices, and the national coal price center is expected to continue to decline 7% in 2024, and the profit for the first phase is considerable. The second phase will be put into operation by the end of 2025. It will be consumed within the province and the peak will be adjusted nearby. We estimate that if Changle injections increase the company's net profit from 2024-2026 by 109%/109%/103%, Changle Dudeng's net profit can still maintain 6/6/5 points in 2024-2026, corresponding to ROE 19%/20%/20%. According to the Group's interindustry competition commitments, the Wuwei/Zhangye Power Plant (2023 net profit 0.039/0.112 billion yuan) is expected to be injected before the end of 2025.

Risk warning: Incoming water falls short of expectations, asset injection falls short of expectations, UHV construction falls short of expectations, and coal prices have exceeded expectations.