Incident: In the first half of 2024, the company achieved operating income of 58.31 billion yuan, up 0.19% year on year; net profit to mother of 3.108 billion yuan, up 104.85% year on year; net profit after deducting 3.119 billion yuan from mother, up 145.43% year on year; basic EPS was 0.1242 yuan/share, up 212.06% year on year.

Comment: Gross margin increased month-on-month, and return on investment increased dramatically. The company achieved revenue of 27.573 billion in 24Q2, a year-on-year decrease of 8.56% and a month-on-month decrease of 10.29%. The main reasons were the average feed-in price fell 6.72%/5.59%, respectively, and the year-on-month decrease of 2.5%/-4.47%, respectively. In addition, it mainly benefited from factors such as a year-on-month decline in coal prices and an increase in new energy installations. Gross margin increased 6.25 pcts and 4.29 pcts to 17.70%, respectively, the highest level since 20Q4. 41.33%, 18.40 to 4.879 billion. In terms of expenses, the cost rate increased by 0.06 and 0.5 pct to 6.52%, respectively, during the period, but it is still at a historically low level. Mainly benefiting from the profit growth of participating companies, the company's investment income increased 63.10% year on year to 1.324 billion, accounting for 40.53% of the company's operating profit, up 3.85 pcts year on year. Due to the loss of 0.961 billion in depreciation of the company's accrued assets (including 0.764 billion for the parent company), the 24Q2 company's operating profit/total profit/net profit/net profit attributable to mother increased by 47.59/41.36/34.30/28.71/46.50% year-on-year respectively, achieving net profit/net profit attributable to mother of 1.777/1.792 billion yuan, exceeding the median performance forecast of 12.5%/3.6%.

The performance of thermal power increased year on year, and the profit from gas engines was better than that of coal engines. Coal mills (including heat) achieved a total profit of 0.61 billion yuan, a year-on-year increase of 190%, a 32% month-on-month decrease, and electricity profit of 14 yuan/MWh, an increase of 225% year-on-year and a 27% month-on-month decrease. It is expected that the main reason for the year-on-year increase is the decline in coal prices. The month-on-month decline is mainly due to the sharp drop in feed-in electricity and electricity prices and the effects of depreciation. In fact, after adding depreciation, growth can be achieved month-on-month. In addition, gas engines (including heat) achieved a total profit of 0.145 billion yuan in 24Q2, a year-on-year increase of 75% and a decrease of 27% month-on-month. The electricity profit was 35 yuan/MWh, which was stronger than that of coal engines.

Hydropower profits have increased dramatically, and wind power under pressure photovoltaics has increased. Mainly benefiting from improvements in incoming water, Hydropower 24Q2 achieved a total profit of 1.1 billion yuan, an increase of 253% over the previous year. Wind power achieved a total profit of 0.38 billion yuan, a year-on-year decrease of 44%, and the year-on-year reduction of electricity profit by 55% to 90 yuan/MWh. Photovoltaics achieved a total profit of 0.24 billion yuan, an increase of 19% year on year, and electricity profit decreased 17% year over year to 160 yuan/MWh. In 24H1, the company added 0.5643 and 0.4083 million kilowatts of wind power and photovoltaics, with a cumulative installed capacity of 8.0288 and 4.7445 million kilowatts. Continued growth in installed capacity is expected to partially offset the negative impact of the decline in electricity profits.

Profit forecast: In 2024-2026, the company's revenue is expected to be 122.8/123.3 billion yuan, net profit to mother 4.156/5.176/5.986 billion yuan, EPS 0.12/0.18/0.22 yuan, corresponding to PE 21.97/15.54/12.44 times, maintaining the “buy” rating.

Risk warning: Changes in the macroeconomic situation at home and abroad have exceeded expectations, utilization hours and electricity prices have fallen short of expectations, and profit forecasts and valuation models have fallen short of expectations.