Incident: On August 15, the company released its 2024 semi-annual performance report. During the reporting period, it achieved operating income of 0.603 billion yuan, up 10.24% year on year; net profit to mother of 2.302 billion yuan, up 9.74% year on year; net profit after deducting non-return to mother of 2.29 billion yuan, up 10.27% year on year. In 2024Q2, the company achieved operating income of 0.346 billion yuan, up 16.41% year on year, up 34.05% month on month; net profit to mother of 1.029 billion yuan, up 7.01% year on year, down 19.14% month on month; net profit without return to mother of 1.022 billion yuan, up 8.33% year on year and 19.43% month on month. As of 2024H1, the company's installed capacity continued to expand, with a total installed capacity of 36.83 million kilowatts (excluding Three Gorges New Energy, CGN Wind Power and CNNC Convergence) and 16.37 million kilowatts of equity installed capacity; 2.005 billion kilowatt-hours of power generation were completed in the first half of the year, an increase of 17.87% over the previous year.

The increase in the amount of water and electricity hedged fluctuations in electricity prices and contributed to the increase in performance. Affected by improvements in incoming water, 2024H1 achieved 1.891 billion kilowatt-hours of hydropower generation, an increase of 18.11% over the previous year; the average feed-in price for hydropower was 0.241 yuan/kilowatt-hour, a decrease of 2.03% over the previous year. Affected by new PV installations, 2024H1's photovoltaic power generation capacity was 0.114 billion kilowatt-hours, up 14.00% year on year. Due to the company's new merger and acquisition holding project, Guangxi Rong'an Yuchai New Energy Co., Ltd.'s PV project without subsidies, and the subsequent decline in the company's PV price, the average PV feed-in price was 0.517 yuan/kilowatt-hour, a decrease of 17.81% year on year. The increase in power generation ironed out the decline in electricity prices and boosted performance growth.

Investment income increases profits, and the Yalong River leverages its resource advantages. 2024H1's investment income was 2.412 billion yuan, up 4.88% year on year, mostly contributing to the main participating companies. Yalong River Company's investment income was 2.113 billion yuan, Daduhe Company's investment income was 0.147 billion yuan, and CNNC Huineng's investment income was 0.099 billion yuan. 1) Yalong River investment income is expected to continue to expand. As of 2024H1, the Yalong River Company has put into operation 19.2 million kilowatts of hydropower installations. At the same time, the “Yalong River” joint optimization and scheduling has effectively increased hydropower storage and power generation capacity in the Yalong River basin to maximize cascade power generation efficiency. In July 2024, the company increased the capital of Yalong River Company by 1.296 billion yuan according to the shareholding ratio, which is conducive to continuing to enhance its competitiveness and is expected to continue to benefit from the increase in investment income of the core shareholder Yalong River Company. 2) The Dadu River is rich in water, and the increase in shareholding ratio has led to an increase in the company's performance.

By the end of 2023, the cumulative annual power generation capacity of Guoneng Daduhe Company reached 44.663 billion kilowatt-hours, and energy production remained at a high level. Guoneng Dadu River Company, which holds 20% of the company's shares, has hydropower resources in the main stream and tributaries of the Dadu River. As of 24H1, Guoneng Dadu River Company has put into production a power plant with an installed capacity of more than 11.7 million kilowatts. As of 24H1, the Dadu River's water storage capacity increased by 72.4% year on year, exceeding the same period in many years. As incoming water improves, the Dadu River is expected to continue to increase its power generation capacity.

Investment suggestions: The company's hydropower supply improves incoming water, increases power generation capacity, and continues to increase the contribution of investment income to performance. Based on the company's profit forecast based on feed-in electricity volume and electricity price changes, we expect net profit to be 4.92/5.199/5.483 billion yuan for 24/25/26, and EPS of 1.01/1.07/1.12 yuan for each year, respectively. The PE corresponding to the closing price of August 16 was 18/17/16 times, respectively, maintaining the “Cautious Recommendation” rating.

Risk warning: Incoming water from the watershed has dried up; fluctuations in electricity prices in market transactions; fiscal and taxation policy adjustments.