Incident: The company released its 2024 semi-annual report. In the first half of 2024, the company achieved operating income of 6.665 billion yuan, a year-on-year increase of 4.57%, and achieved net profit to mother of 1.188 billion yuan, an increase of 27.12% over the previous year, corresponding to achieving net profit of 0.662 billion yuan in the second quarter of 2024, an increase of 64.51% year-on-year, exceeding our expectations.

Early settlement of alternative electricity, improved coal and electricity profits, and received dividends. The company's profit was impressive in the first half of the year. 2024H1 achieved 11.16 billion kilowatt-hours of power generation, up 2.8% year on year. Among them, onshore wind power fell 4.7% year on year, offshore wind power increased 4.9% year on year, gas power increased 18.83% year on year, and coal power fell 1% year on year. Among them, the increase in gas and electricity is expected to be mainly due to a year-on-year increase in alternative electricity settlement. From a profit perspective, the main reasons for the sharp year-on-year increase in the company's profit in the first half of the year include: 1) The impact of the settlement cycle of gas and electricity replacement electricity in 2024, from April to December, while 2023 was only September-December. 2024Q2 alternative electricity settlement greatly improved Jinjiang gas and electricity profits. 2024H1 Jinjiang gas and electricity achieved net profit of -0.022 billion yuan, an increase of 0.13 billion yuan over the previous year, constituting the main source of the company's profit improvement; 2) coal and electricity profit improvement. 2024H1 Hongshan Thermal Power achieved net profit of 0.273 billion yuan, a year-on-year increase of 0.033 billion yuan; Funeng Guidian achieved net profit of 0.054 billion yuan, an increase of 0.032 billion yuan over the previous year; National Energy Quanzhou (participating company) achieved an investment income of 0.052 billion yuan, an increase of 0.024 billion yuan over the previous year. The profit improvement estimates of these coal and power companies mainly benefited from declining coal costs; 3) The dividend income from the company's investment income increased sharply. The dividend income obtained by 2024H1's other equity instruments during the holding period reached 0.07 billion yuan, compared to only 0.007 billion yuan in the same period last year. We expect that the sharp increase in dividend revenue may come from China Resources Wenzhou's dividends. However, in terms of new energy, due to wind resources, landwind power generation has declined, and ocean wind power generation has increased (in addition, some participating companies have estimated that seabreeze power generation has declined), so profits from new energy sources have basically remained flat.

An additional 0.66 million kilowatts were approved, and the shares in Haifeng were put into production one after another, and it is expected to gradually contribute to profits. The company's participating company, Strait Power (35% shareholding), has an ocean wind index of 0.9 million kilowatts, of which 0.5 million kilowatts have already been put into operation, which is expected to contribute part of the profit this year. Another 0.4 million kilowatt wind power project has already been approved. These projects are all affordable projects. Currently, the cost level of Seabreeze is low, and the yield level is expected to be high after production. In addition, the company approved a new 0.66 million kilowatt seabreeze project (Changle Offshore Zone J) project this year. The project has an equivalent full load time of 4564 hours, a capacity coefficient of 0.521, and a good level of wind resources. It is expected to be put into operation by the end of 2026 according to the 2-year construction period. The yield level of the project is expected to be quite impressive after commissioning.

In the future, the ocean wind approval method is expected to be more reasonable, and it is expected that high returns will be obtained when wind resources are high quality and costs are reduced. According to Fujian Province's “14th Five-Year Plan” special energy development plan, during the 14th Five-Year Plan, Fujian Province plans to increase the installed capacity of 4.1 million kilowatts of grid-connected offshore wind power and develop an additional 10.3 million kilowatts of offshore wind power in the provincial area, and strive to promote the commencement of 4.8 million kilowatts of deep-sea wind power. In the early 14th Five-Year Plan period, Fujian Province only approved about 6 GW of offshore wind power projects. It is expected that the approval of the Fujian Sea Breeze will accelerate in the next two years. As a provincial power leader, the company has a significant advantage in obtaining projects, and is expected to usher in a new round of growth. From the perspective of yield, in the past, the bid price for the Fujian Sea Wind project was the main one, and the winning electricity price dropped to around 0.2 yuan/kilowatt-hour, causing the profitability of the Seabreeze project to be lower. It is expected that in the future, the approval method for Fujian Province will be more reasonable. Against the backdrop of falling costs and the number one wind resource in the country, the yield of new projects in Fujian Province is expected to increase dramatically in the future. Currently, the winning bid price for offshore fans (including towers) has dropped to 3,680 yuan/kW, which is almost lower than the highest price in 2021. If the Internet can be accessed at an affordable price, the operating profit of the sea breeze project is extremely impressive. We estimate the IRR capital of more than 15%.

Profit forecast and rating: We maintain the company's 2024-2026 net profit forecast of 29.88, 31.45, and 3.47 billion yuan, respectively, with year-on-year growth rates of 14%, 5.3%, and 10.3%, respectively. The PE corresponding to the current stock price is 9, 8, and 7 times (considering the increase in share capital brought about by convertible debt-to-equity swaps). The current valuation level is still low, and we continue to maintain a “buy” rating.

Risk warning: Seabreeze approval falls short of expectations, wind power generation falls short of expectations