Event: The company announced its results for the first half of 2024, achieving revenue of 26.472 billion yuan (same below), an increase of 24.18% over the previous year. Net profit attributable to owners of the parent company was 2.802 billion yuan, an increase of 51.50% year on year; net profit attributable to ordinary shareholders of the parent company was 2.57 billion yuan (after deducting interest on perpetual bonds of 0.232 billion yuan), an increase of 52.98% year on year. The performance was basically in line with our expectations. The company announced a special dividend of 0.05 yuan/share in cash, demonstrating its confidence in growth.

Hydropower: Incoming water becomes abundant, turning losses into profits. The Hunan region, where 1H24's main hydropower station is located, has had heavy rainfall, and the average number of hours used by hydropower has increased dramatically, up 74.09% year on year. In the context of the hydropower boom, 1H24's hydropower sales increased by 89.85% year on year, driving hydropower to successfully turn a loss into a profit. The sector's net profit after tax increased by 0.913 billion yuan to 0.767 billion yuan year on year, contributing to the main performance increase.

Thermal power: The reduction in costs is greater than the reduction in electricity prices, and profitability has steadily rebounded. With the steady growth of the domestic economy and the rapid development of the new energy industry, combined with the stable supply of imported coal, the price of 1H24 thermal coal has declined somewhat. The company optimized the procurement structure, reduced railway transportation costs, and reduced the average unit fuel cost in the thermal power sector by 8.01%. In contrast, the company's average feed-in electricity prices in the coal, gas, and electricity sectors fell by only 2.61% and 2.92% year on year, respectively. The drop in fuel costs exceeded the decline in thermal power prices, which led to a sharp increase in thermal power profits, which increased 97.23% to 1.108 billion yuan over the previous year. In terms of electricity volume, electricity sales in sectors such as coal power, gas power, and environmentally friendly power generation increased by 0.39%, 2.67%, and 46.13% respectively, all maintaining an upward trend.

New energy: The expansion of asset scale effectively boosts electricity sales and profit growth. The company acquired five clean energy companies in September 2023, rapidly expanded the scale of clean energy assets, and successfully optimized the profit structure. As of June 30, 2024, the company's clean energy installed capacity had reached 37.24 million kilowatts, accounting for 77% of the total installed capacity, an increase of 10.71% over the previous year. Benefiting from the increase in asset size, 1H24's new energy sales increased dramatically. Wind power and photovoltaics increased 57.54% and 96.67% year on year, driving net profit after tax to increase 34.87% and 46.47% year on year, respectively. In terms of electricity prices, the average feed-in electricity prices were lowered by the commissioning or merger of affordable feed-in power generation projects. The average feed-in tariffs in 1H24's wind power, photovoltaic and other sectors decreased by 6.32% and 4.28%, respectively. In the future, the company will continue to increase investment in the clean energy sector, and clean energy installations are expected to continue to increase.

Profit forecast and rating: Based on the company's interim results and the profit situation of acquired assets, we lowered the company's 2024-2025 net profit forecast to 5.661 billion yuan and 6.81 billion yuan respectively (6.528 and 7.23 billion yuan before adjustment, respectively), and added the 2026 net profit forecast to 8.078 billion yuan. The current stock price corresponds to 2024-2026 PE 7, 6, and 5 times, respectively. Maintain a “buy” rating.

Risk warning: The decline in electricity prices exceeded expectations, and the installed capacity of new energy sources fell short of expectations.