Electricity reform is driving a revaluation of the value of thermal power. Improving the amount of incoming water to hydropower is expected to increase, and the installed landscape is speeding up, and it is expected that it will continue to contribute to performance growth. First coverage, with an “increase in weight” investment rating.

The Group's thermal power business is finally integrated into the platform, increasing the share of clean energy installed to accelerate the transition from fire to green. The company is the final integration platform for the thermal power business of Datang Group. In recent years, it has actively promoted green and low-carbon transformation and developed into a large-scale integrated energy company. By the end of 2023, the company's total installed capacity was 73.291 million kilowatts, of which clean energy accounted for 37.75% of the installed capacity. In 2023, the company's total revenue reached 122.404 billion yuan, up 4.77% year-on-year. Benefiting from falling coal prices, the company's fuel cost per unit of thermal power fell by 27.21 yuan/megawatt-hour year on year, and net profit to mother turned loss into profit, reaching 1.365 billion yuan.

Electricity reform has driven a revaluation of the value of thermal power. The company's coal consumption for electricity supply continues to decline, and thermal power profits are expected to improve further.

The company's installed thermal power capacity is relatively stable. In 2019-2023, the total coal consumption for electricity supply was reduced by 6.87 grams/kilowatt-hour, and power generation efficiency continued to improve. The Toktor Power Plant, which belongs to the company, is the largest thermal power plant in operation in the world. Power plant profits have continued to recover since 2022. Net profit in 2023 reached 1.07 billion yuan, +1.4% over the same period last year. Against the backdrop of a year-on-year decline in coal prices, continuing tight balance between electricity supply and demand, and capacity electricity costs helping to recover fixed costs, the company's thermal power profits are expected to improve further.

Consumption issues are expected to improve, and hydropower may rise sharply in volume and price. Since April 2024, incoming water has improved markedly year on year. The company's 2Q24 hydropower feed-in electricity volume increased by 58.0% year on year, which is expected to drive an increase in the hydropower sector's performance. Affected by factors such as poor delivery channels, the problem of water disposal in the Dadu River Basin is serious. The company's hydropower plants in the Dadu River basin account for about 38% of the installed capacity. It is expected that after UHV production is put into operation in Sichuan and Chongqing, there will be a marked improvement in hydropower consumption. Combined with the expected rise in local hydropower prices, the value of hydropower is expected to be re-evaluated.

The transformation of “fire to green” is accelerating, and participation in nuclear power shares the return on investment. The company is vigorously promoting the transition to low-carbon clean energy. In 2019-2023, the installed CAGR of wind power was 22.9%, and the CAGR of the installed capacity of photovoltaics was 61.6%. The company plans to add no less than 30 million kilowatts of new energy installed capacity during the “14th Five-Year Plan” period. There is still a big gap compared to the current installed capacity target. It is expected that the company will accelerate the pace of installation in 2024 and 2025.

Furthermore, the company's participation in Ningde Nuclear Power has obtained stable investment returns. It is expected that after the completion and commissioning of Ningde Units 5 and 6, the company's performance will be further enhanced.

Profit forecasting and valuation. The company's net profit for 2024-2026 is estimated to be 4.128, 5.54, and 6.116 billion yuan, respectively, up 202.4%, 34.2%, and 10.4% year-on-year; PE corresponding to the current stock price is 12.9x, 9.6x, and 8.7x, respectively. First coverage, with an “increase in weight” investment rating.

Risk warning: Risk of rising fuel prices, risk of feed-in tariff fluctuations, poor landscape resources, falling short of expectations, and project acquisition and construction progress falling short of expectations.