Key points of investment:

Incident: The company released its 2024 semi-annual report. In 1H24, the company achieved revenue of 6.665 billion yuan, a year-on-year increase of 4.57%, and achieved net profit of 1.188 billion yuan, up 27.12% year on year, slightly exceeding our previous expectations. This was mainly due to the Q2 company's thermal power growth exceeding expectations, which led to a 65% increase in the company's Q2 single quarter results to 0.662 billion yuan.

Thermal power generation continues to improve, and falling coal prices have increased profits from coal power. 1H24's thermal power generation capacity was 8.483 billion kilowatt-hours, up 3.38% year on year. Among them, gas power, cogeneration, and coal-fired power generation were 1.689, 3.466, and 3.328 billion kilowatt-hours respectively, with year-on-year changes of 18.83%, -3.31%, and 4.01%, respectively. At the same time, thanks to the year-on-year decline in coal prices, the performance of subsidiaries in the thermal power sector increased significantly. The net profit of Hongshan Thermal Power increased 14.04% year on year to 0.273 billion yuan, and Funeng Guidian's net profit increased by 134.15% to 0.055 billion yuan year on year. The net profit of Jinjiang Gas and Electricity benefited from the year-on-year increase in revenue from alternative electricity. Net profit increased by 85.38% year on year, and profit increased by 0.132 billion yuan year on year.

On the cost side, the average price of 1H24 Qinhuangdao 5,500 kcal coal was 876.88 yuan/ton, down 14.1% from 1H23 at 1020.79 yuan/ton.

The company's thermal power sector is expected to continue to benefit from declining power generation costs in the second half of the year and continue to drive the company's performance growth.

Lu Haifeng's performance is divided, and the company's ongoing projects can enhance the company's long-term performance. 1H24's wind power generation capacity was 2.646 billion kilowatt-hours, up 0.65% year over year. Among them, the generation capacity of sea wind and land wind was 1.531 and 1.115 billion kilowatt-hours, respectively, with year-on-year changes of 4.90% and -4.66%, respectively. The net profit of the new energy subsidiary was divided due to differences in wind conditions. Funeng New Energy's net profit changed by -10.47% year on year, while Funeng Strait's net profit increased by 30.43% year on year. The company's ocean wind project is rich in resources. Since the beginning of this year, the company has been approved for 4 seabreeze projects in Changle Waihai Area I North, Matsu Island Offshore Area A, Ningde Deep Water Area A, and Changle Offshore Zone J, with a total construction capacity of 2,070 megawatts, and there are still projects under construction in Changle Waihai Area C. Considering the improvement in the provincial offshore wind competition pattern, wind power prices have improved. Even if the company's “three exemptions and three halves” policies expire one after another in the short term, we are still optimistic about the performance of the new energy division in the long run.

A blueprint for diversified installation has been drawn up, and diversified financing channels have laid a solid foundation for project acquisition. The company's high-quality assets are diverse. Currently, it is drawing funds from Magnolia, Huashan, and Dongtian, with a total of 4.0 GW, and 1.32 GW of Dongqiao Thermal Power Phase 1. At the same time, it is actively seeking wind power, Dongqiao Thermoelectric Phase II and Jinjiang Gas Power Phase II projects. According to the plan, the company will control the operation and construction of 15 million kilowatts of electricity generation by the end of 2025. In terms of capital, as of 1H24, the company's current capital reached 5.83 billion yuan, and plans to raise no more than 3.9 billion yuan by issuing new convertible bonds to provide financial guarantees for the development of the Quanhui 2x660 MW ultra-supercritical cogeneration project and the Magnolia Savings Project. Under the interest rate cut cycle, a decrease in capital costs can further reduce the financial pressure on the company. 1H24's financial expenses were 0.268 billion yuan, a year-on-year decrease of 12.27%.

Profit forecast and rating: Considering the decline in fuel costs and the continuous restoration of the company's thermal power performance, we raised the company's net profit forecast for 2024-2026 to 3.039, 3.301, and 3.771 billion yuan (the original value was 2.814, 3.105, 3.303 billion yuan). As of 1H24, the company's accounts receivable reached 5.558 billion yuan. We believe that the subsidy priority for the Sea Breeze project is high, and the subsidy funds for the Sea Breeze project are returning quickly, which is expected to support the company's diversified project development. The company's current stock price is 8, 8, and 7 times PE, respectively, below the industry average, and maintains a “buy” rating.

Risk warning: New energy development progress falls short of expectations, incoming wind conditions are weaker than expected, risk of falling electricity prices, risk of rising coal prices