Incidents:

On August 22, 2024, Datang Power released its 2024 semi-annual report: 2024H1 achieved revenue of 58.31 billion yuan, +0.2% year-on-year, and realized net profit of 3.11 billion yuan to mother, +104.85% year-on-year.

2024Q2 achieved revenue of 27.57 billion yuan, -8.6% year over year, and realized net profit of 1.78 billion yuan to mother, +28.7% year over year.

Investment highlights:

2024Q2's operating performance was +98% YoY. 2024Q2's thermal power and wind power generated a total impairment of 0.96 billion yuan. If no impairment was taken into account, 2024Q2's net profit to mother was 2.74 billion yuan, +98% compared to the same period last year. The Q2 performance improved significantly. We think it was mainly an improvement in coal power and hydropower performance, as well as an increase in investment income. 2024Q2's investment income was 1.32 billion yuan, +63% YoY. 2024H1's total coal machine profit was 1.51 billion yuan, which turned a loss into profit from 2023H1's -0.8 billion yuan, a significant improvement from 2023H1's total profit of 0.09 billion yuan, a significant improvement over 2023H1. The total profit of combustion engine/wind power/photovoltaics was 0.35/1.13/0.39 billion yuan, +59.1%/-23.0%/+14.4% over the same period last year.

The 2024H1 coal and electricity performance turned a year-on-year loss into a profit. 2024H1's total coal machine profit was 1.51 billion yuan, which turned a loss into profit compared to -0.8 billion yuan in 2023H1, 1.89 billion yuan without impairment, 2.1 cents/degree, and 2023H1 was -0.9 cents/degree. The year-on-year improvement in performance was mainly due to the year-on-year decline in fuel prices. In addition, due to improvements in incoming water, 2024H1 coal-to-electricity feed-in capacity was -0.8% year over year, while 2024Q2 was -10.8% year over year.

Incoming water restoration led to a sharp increase in hydropower performance over the same period last year. The total profit of 2024H1 hydropower was 1.03 billion yuan, a significant improvement from 2023H1's 0.09 billion yuan. Net profit per kilowatt hour was 7.8 cents/degree, and 2023H1 was 1.0 points/degree, mainly the year-on-year improvement in incoming water. 2024H1 hydro feed-in electricity volume was +41.3% year over year, and 2024Q2 was +58.0% year over year.

The 2024H1 Scenery added a total of 0.97GW of installed capacity. The total profit of 2024H1 wind power was 1.13 billion yuan, -23% year on year, 1.52 billion yuan, +3.2% year on year, +3.2% year on year, +19.9% year on year, net electricity profit 0.177 yuan/degree, -2.9 points/degree year on year; total PV profit 0.39 billion yuan, +14.4% year on year, feed-in power supply +48.45% year on year, net profit 0.15 yuan/kilowatt hour, -4.4 points/degree year on year. 2024H1 added 0.56/0.41 GW of wind power/photovoltaics installed, a total of 0.97 GW, and 3.5/2.7 GW under construction.

Profit forecast and investment rating: Considering the significant year-on-year recovery of the 2024H1 company's thermal power and hydropower performance, we raised our profit forecast. We expect the company's revenue for 2024-2026 to be 123.3/124.7/125.2 billion yuan, respectively, and net profit to mother of 5.05/5.56/6.12 billion yuan, respectively, corresponding to PE 10/9/8 times. Looking ahead to the second half of 2024, the improvement in incoming hydropower is expected to further restore performance and maintain a “buy” rating.

Risk warning: Policy progress falls short of expectations; new installed capacity falls short of expectations; sharp rise in coal prices; reduction in electricity prices; dry water supply; increased industry competition; risk of depreciation, etc.