1H24 results are in line with our expectations

China Electric Power announced 1H24 results: operating income of 26.5 billion yuan, +24% year on year, and net profit of 2.8 billion yuan to mother, +51% year over year. The performance is in line with our expectations. An interim special dividend of $0.05 per share (tax included) was paid at a dividend ratio of approximately 24% (common shareholder caliber).

Thermal power: The profit before tax from coal power is 5 points, +72% compared to the same period last year. The profitability is better than that of the same industry. On the revenue side, 1H24's coal and electricity usage hours reached 2,565 hours, the same as the previous year. Electricity prices ranged -3% to 392 yuan/megawatt-hour compared to the same period last year. On the cost side, the unit fuel cost was -8% to 274 yuan/megawatt-hour, and the ignition price spread was +13% to 118 yuan/megawatt-hour, driving profit before tax +73% to 1.33 billion yuan, and +0.56 billion yuan year over year. The company's thermal power assets are concentrated in Anhui, Shanxi and other places, and its profitability is high.

Hydropower: Strong water intake led to a reversal in performance, with pre-tax profit reversed a loss of 1.17 billion yuan to 0.97 billion yuan (1H23 was -0.19 billion yuan). Hunan, Guizhou and other places where the company has many hydropower installations are abundant. 1H24 hydropower utilization hours were +74% year-on-year, and electricity sales were +90% year-on-year. Drive performance and reverse losses. Due to the increase in power generation capacity, the price of 1H24 hydropower was -4% to 252 yuan/megawatt-hour compared to the same period last year.

New energy: Wind and energy consumption is under pressure, profit before electricity tax falls to 1 gros/1 cent, and PV financial costs have increased. 1H24 Scenery Market accounted for 83%/39% of transactions, +11ppt/4ppt year on year; superimposed affordable projects increased, wind and solar prices were -6%/-4% YoY. In terms of utilization hours, 1H24 wind/photovoltaic were -8%/-4%, respectively, and the resources were poor. In terms of electricity profits, wind power was -13% year over year. Financial expenses increased due to PV asset injection last year, compounding the pressure on electricity prices, -23% compared to the same period last year.

After improving profits, 1H24's operating cash flow was +67% year-on-year to 5.4 billion yuan. 1H24's financial expenses were +29.6% year-on-year due to 2H23's acquisition of clean energy and increased liabilities.

Development trends

The new energy project reserves about 23 GW, and the focus of construction will be on wind power. Considering the declining cost of wind power, future new energy construction will focus on land wind and sea wind projects, currently reserve 17 GW, and focus on the consumer situation of the projects. Actively respond to the consumption of green electricity and be optimistic about the gradual implementation of a green environment. 1H24's green power trading volume was +76% year over year, revenue increased by about 0.216 billion yuan, green license trading volume was +31% year over year, and revenue increased by about 0.05 billion yuan. We believe that the company will respond positively to consumption issues, and that environmental value delivery is expected to boost earnings performance.

Profit forecasting and valuation

Considering that the hydropower and thermal power sectors performed better than new energy, we raised the profits of the thermal power and hydropower sectors, lowered the profit from new energy sources, kept the overall profit forecast for 2024E/2025E unchanged, and maintained the “outperforming industry” rating. Considering that the company's dividend value has a valuation premium, we raised our target price by 10% to HK$4.62, which is 29% higher than the current share price, corresponding to 2024E/2025E 9.9x/8.3x P/E. The current stock price corresponds to 2024E/2025E 7.7x/6.4x.

risks

Wind and photovoltaic electricity prices fell short of expectations.