Incident: 1) The company released its 2024 semi-annual report. The first half of the year achieved revenue of 26.472 billion yuan, an increase of 24.18% year on year; profit attributable to equity holders was 2.802 billion yuan, an increase of 51.5% year on year, which is the median performance forecast. 2) The company announced the payment of a special dividend for the 20th anniversary of listing. It intends to declare a special dividend of RMB 0.05 (before tax) (i.e. HK$0.0547) per common share.

Due to abundant incoming water and falling coal prices, performance increased dramatically in the first half of the year. The increase in the company's performance in the first half of the year was mainly due to a sharp improvement in incoming water from the Hunan region and a drop in coal prices. In addition, the company acquired the Group's new energy asset package at the end of last year (2022 performance level of 1 billion), which included the company's performance in the fourth quarter of last year, leading to an increase in the first half of the year's performance. The company achieved pre-tax profit of 13.32/0.972/2.184/1.326 billion yuan in the first half of the year, with year-on-year changes of +5.60/+11.66/+5.92/+0.449 billion yuan; corresponding electricity profits were 0.0464/0.0908/0.1667/0.1124 yuan/kWh, respectively. Thermal power profitability was at an excellent level in the industry, higher than Huaneng International (0.023 yuan/kWh) and Guodian Electric Power (0.0403 yuan/kWh) kilowatt hours). The company's thermal power profit improved by 1.91 points year-on-year, mainly benefiting from a decrease in the cost of coal-burning electricity by 23.87 yuan/megawatt-hour, while electricity consumption was relatively stable.

In terms of installed capacity, as of the end of June 2024, the company held 48.33 million kilowatts of installed capacity, an increase of 4.13 million kilowatts over the end of last year. They were all new energy sources. By the end of June, the company's share of clean energy had reached 77.07%. In terms of electricity volume, the company achieved electricity sales of 64.3 billion kilowatt-hours in the first half of the year, of which hydropower/wind power/photovoltaic/coal power were 107/13.1/11.8/26.8 billion kilowatt-hours, respectively, with year-on-year changes of +90%/+58%/+97%/+0.4%, respectively. In terms of electricity prices, hydropower/wind power/photovoltaic/coal power were 251.81/446.62/400.72/392.16 yuan/megawatt-hour, respectively, with year-on-year changes of -11.84/-30.11/-17.92/-10.52 yuan/megawatt-hour, respectively. The decline in hydropower and electricity prices is mainly due to an increase in ancillary service allocations due to an increase in electricity volume. The decline in wind power and photovoltaic electricity prices is mainly due to the impact of new affordable projects. The decline in coal and electricity prices is mainly due to the decline in fuel prices and the decline in spot trading prices in Shanxi.

China Power Investment Group's flagship platform continues to enjoy the Group's high-quality asset support. The company is China Power Investment Group's flagship platform and proposes to build a world-class clean energy supplier. China Power Investment Group clarified its position at the beginning of the company's listing, promising in writing that the company would have priority acquisition and development rights for the Group's assets outside of Shanghai. Since 2022, the Group has supported the company with 4 rounds of asset operation, including injecting high-quality assets and divestment of old coal power units. The intention to build a flagship platform around the company is obvious. Currently, the Group's unlisted high-quality clean assets include the Yellow River Upstream Hydropower Company, which held 30 GW at the end of 2023, including 12 GW of hydropower, and achieved a net profit of 5.6 billion yuan in 2023. It is worth noting that China Power Investment Group's asset securitization rate is at the end of the five major power groups, and the market value of China Electric Power is far lower than that of other groups' flagship platforms.

The current valuation is in a deep value range, and the increase in asset management holdings of central enterprises reflects the capital market's recognition of the company's value. In May of this year, CITIC Financial Asset Management increased its shares to 5%. Since the beginning of the year, many insurance institutions have listed Hong Kong stock electricity operators. We believe that all of the above reflects the recognition of the value of long-term capital for Hong Kong stock power companies. The company's current PB is only 0.73 times, which is at the middle level of the industry and historically low. The company currently has 31 GW of new energy installed, which is at the forefront of the country. We believe that there is a downturn in the green power sector, but the response has been quite adequate. The benefits are gradually accumulating, and the logic of the industry's long slope and heavy snow has not changed. The return on the operating side is expected to be close to that of stable utilities. Relevant policy advantages are expected to be a catalyst for the company's trending market.

Profit forecast and valuation: Considering the pressure on electricity prices for new energy projects, the company is expected to adjust the pace of installation and commissioning. We adjusted the company's net profit forecasts for 2024-2026 to 4.81, 5.66, and 6.41 billion yuan respectively (the previous forecasts were 4.8, 6.93, and 8.03 billion yuan), respectively. The current stock price corresponding to PE is 8, 7, and 6 times, respectively. The company promises a dividend ratio of not less than 50% of net profit to mother. The corresponding dividend rate is 6.1% according to the 50% dividend ratio; considering the special dividend of 0.05 yuan/share, the corresponding dividend rate is 1.6%, for a total dividend rate of 7.7%. The company is the flagship platform of China Power Investment Group. It has high quality coal, hydropower and new energy assets and maintains a “buy” rating.

Risk warning: incoming water falls short of expectations, new energy price policies fall short of expectations, and risk of impairment of accounts receivable.