Incident: On the evening of August 28, 2024, the company released its 2024 semi-annual report. In the first half of 2024, the company achieved operating income of 27.102 billion yuan, up 2.79% year on year; realized net profit of 3.744 billion yuan, up 12.19% year on year; net profit after deducted from mother was 3.717 billion yuan, up 12.01% year on year; net cash flow from operating activities was 12.473 billion yuan, up 36.81% year on year, basic earnings per share of 0.4902 yuan.

Among them, 2024Q2 achieved operating income of 12.994 billion yuan, a year-on-year decrease of 0.89%; realized net profit to mother of 1.708 billion yuan, a year-on-year decrease of 0.87%.

By business segment, the company's hydropower business achieved revenue of 11.647 billion yuan in the first half of 2024, an increase of 0.81% over the previous year, and a gross profit of 7.379 billion yuan, accounting for 69.78%. The thermal power business achieved revenue of 11.694 billion yuan, a year-on-year increase of 0.26%, and gross profit of 1.608 billion yuan, accounting for 15.20%. The new energy business achieved revenue of 2.715 billion yuan, a year-on-year increase of 16.82%, and gross profit of 1.546 billion yuan, accounting for 14.62%.

Comment:

The company's net profit to mother increased steadily in the first half of 2024, mainly due to: 1) abundant incoming water from various hydropower plant basins in the second quarter, and hydropower generation capacity increased significantly year on year; 2) the year-on-year decline in thermal power fuel procurement costs led to performance recovery. At the same time, 2 0.66 million units of SDIC Qinzhou Electric Power were put into operation one after another, driving a year-on-year increase in thermal power generation. 3) The increase in the installed capacity of new energy sources has led to an increase in electricity capacity.

Hydropower: In the first half of 2024, all watersheds were rich in incoming water, the amount of feed-in electricity increased significantly, and electricity prices fell slightly year-on-year. In the first half of 2024, all watersheds were abundant. The company's hydropower feed-in capacity was 43.059 billion kilowatt-hours, up 10.06% year on year. Among them, incoming water in Q2 increased dramatically. The company's hydropower feed-in electricity volume was 21.755 billion kilowatt-hours, up 37.02% year on year; hydropower prices declined slightly in the first half of 2024, and the average feed-in electricity price for hydropower was 0.305 yuan/kilowatt-hour, down 2.24% year on year. Looking at the distribution area: 1) Yalong River Hydropower: In the first half of 2024, Yalong River Hydropower achieved a net profit of 4.405 billion yuan, an increase of 2.55% over the previous year. The Yalong River hydropower feed-in capacity in the first half of the year was 37.945 billion kilowatt-hours, up 9.39% year on year. Among them, Q2 hydropower feed-in capacity was 18.429 billion kilowatt-hours, an increase of 37.38% year on year; the decline in outbound electricity prices and a sharp increase in power generation during the flood season led to changes in the electricity structure, compounded by a high electricity price base in the same period last year. The average feed-in price for hydropower in the Yalong River in the first half of the year was 0.319 yuan/kilowatt-hour, down 1.85% year on year. 2) SDIC DaChaoshan: SDIC Dachasan achieved net profit of 0.36 billion yuan in the first half of 2024, an increase of 21.2% over the previous year. SDIC DaChaoshan achieved feed-in power of 3.214 billion kilowatt-hours in the first half of the year, an increase of 13.66% over the previous year. Among them, Q2 achieved 2.063 billion kilowatt-hours, an increase of 44.39% over the previous year; the average feed-in tariff in the first half of the year was 0.189 yuan/kilowatt-hour, up 2.16% year on year. 3) SDIC Small Three Gorges: In the first half of 2024, SDIC Little Three Gorges feed-in electricity was 1.9 billion kilowatt-hours, up 18.16% year on year. Among them, Q2 feed-in power was 1.263 billion kilowatt-hours, up 22.21% year on year; the average feed-in price in the first half of the year was 0.234 yuan/kilowatt-hour, down 10.34% year on year.

Thermal power: Two units of Qinzhou Second Power were put into operation, and the increase in electricity consumption and power transmission in Fujian Province led to an increase in thermal power feed-in electricity, and the decline in coal combustion costs led to a continuous recovery in profits. In terms of electricity capacity, in the first half of 2024, incoming hydropower from the Guangxi and Guizhou regions where the company's thermal power units are located was repaired year-on-year, squeezing out part of the thermal power generation. At the same time, electricity consumption and external transmission in Fujian Province increased. Combined with the company's Qinzhou Erdian 2*0.66 million kilowatt units, they were put into operation one after another, making up for the decline in thermal power generation.

In the first half of 2024, the company achieved a thermal power feed-in capacity of 26.438 billion kilowatt-hours, an increase of 2.57% over the previous year. Among them, Q2 thermal power feed-in capacity was 12.184 billion kilowatt-hours, a year-on-year decrease of 10.98%.

In terms of electricity prices, the company's average feed-in price in the first half of 2024 was 0.465 yuan/kilowatt-hour, a slight decrease of 1.48% year on year. Among them, Q2 thermal power average feed-in price was 0.467 yuan/kilowatt-hour, down 1.06% year on year. In terms of costs, the coal price center dropped significantly year-on-year in the first half of 2024, driving the company's fuel procurement costs to continue to fall. In the first half of the year, the Qinhuangdao thermal coal (Q5500) liquidation price fell 14.43% year on year, and the Guangzhou Port Indonesian coal (Q5500) bank increase fell 8.28% year on year. SDIC Jinneng, the main subsidiary of the thermal power business, achieved net profit of 0.003 billion yuan in the first half of 2024, SDIC Meizhou Bay achieved net profit of 0.238 billion yuan, SDIC Qinzhou achieved net profit of 0.526 billion yuan, and Huaxia Electric achieved net profit of 0.231 billion yuan. In the first half of the year, the four fire electronics companies achieved a total net profit of 0.998 billion yuan, an increase of 324% over the previous year.

New energy: The increase in installed new energy in the first half of 2024 led to a sharp rise in electricity volume. In terms of electricity, in the first half of 2024, the company added 0.4349 million kilowatts of new energy installed; the 2024Q2 added 0.3548 million kilowatts of installed capacity, mainly photovoltaics. In the first half of 2024, the company's new energy achieved feed-in power of 5.763 billion kilowatt-hours, an increase of 32.03% over the previous year. Among them, wind power feed-in capacity was 3.461 billion kilowatt-hours, an increase of 5.53% year on year, and photovoltaic feed-in power was 2.302 billion kilowatt-hours, an increase of 112.01% year on year. 2024Q2 New Energy achieved feed-in power of 2.874 billion kilowatt-hours, a year-on-year increase of 20.91%. Among them, wind power feed-in capacity was 1.719 billion kilowatt-hours, a year-on-year decrease of 3.42%, and photovoltaic feed-in power of 1.155 billion kilowatt-hours, an increase of 93.42% over the previous year. In terms of electricity prices, due to the continuous increase in the degree of marketization of electricity and the impact of affordable internet access for newly put into operation, new energy feed-in tariffs declined in the first half of 2024. The average feed-in price for wind power was 0.475 yuan/kilowatt-hour, down 3.85% year on year, and the average feed-in price for photovoltaic power generation was 0.795 yuan/kWh, down 30.82% year on year. 2024Q2's average feed-in price for wind power was 0.457 yuan/kilowatt-hour, down 8.42% year on year, while the average feed-in price for photovoltaic power generation was 0.769 yuan/kilowatt-hour, down 28.48% year on year.

Looking ahead, we believe that incoming hydropower in all watersheds is expected to continue to improve year-on-year in 2024, driving high hydropower growth; thermal power is expected to continue to benefit from performance improvements brought about by increased electricity consumption and lower costs. In the long run, the company's Yalong River Hydropower has both steady and high growth potential. The Liangyang Power Plant is expected to contribute a significant increase in power generation to Yalong River hydropower. It has a long-term installed capacity of more than 10 million kilowatts. At the same time, the installed capacity of new energy sources is accelerated, and together the steady growth of the company's performance is promoted.

The scarcity of high-quality large hydropower assets in the Yalong River is prominent, and the hydropower business is stable and has high growth potential.

Yalong River Hydropower, the core asset of the company's hydropower business, is the sole entity in the development of hydropower resources in the Yalong River basin. The Yalong River is the third largest hydropower development base in China. The natural resource endowment of the basin is excellent, and its scarcity as a high-quality large hydropower asset is highlighted. In addition, three major regulatory reservoirs have been built in the watershed, with strong cascade scheduling capabilities. The number of hours used for hydropower generation in the Yalong River Basin is high and there is little interannual fluctuation, and the company's hydropower operation is remarkable. The entire Yalong River basin is planned to have an installed capacity of more than 30 million kilowatts. Currently, 19.2 million kilowatts have been developed, and there are plenty of resources to be developed. In 2021-2022, the Lianghekou and Yangfanggou power plants were put into operation one after another, with a total installed capacity of 4.5 million kilowatts. As the two estuaries basically complete water storage, the power plant's own power generation capacity and downstream cascade compensation benefits will continue to be released, we expect to contribute a significant increase in power generation to hydropower in the Yalong River. In addition, the Kala and Mengdigou hydropower stations are under construction, with a total installed capacity of 3.42 million kilowatts, and the company is expected to be put into operation in 2029-2030; 10 midstream Yagen Level 1 (approved), Yagen Level 2, Jingu and upstream hydropower plants are in the early planning stage, with a total installed capacity of 7.38 million kilowatts.

The complementary advantages of the Yalong River's water and landscape are remarkable, and growth space can be expected as the installed growth of new energy sources accelerates.

As of the first half of 2024, the company's total installed capacity of new energy was 7.438 million kilowatts. According to the company's plan, the company's new energy installed capacity will reach 14.72 million kilowatts during the “14th Five-Year Plan” period, and the installed capacity increase by 2025 is expected to exceed 7 million kilowatts. The company's construction of an integrated hydro-landscape base in the Yalong River has significant project acquisition and consumption advantages. The long-term planned hydro-landscape complementary demonstration base in the Yalong River Basin has an installed capacity of more than 40 million kilowatts of new energy, which has great potential for development.

Profit forecast and rating: SDIC Electric Power has high-quality, scarce hydropower assets in the Yalong River. Hydropower performance is expected to increase significantly with the improvement of incoming water and the release of power generation from the Liangyang Power Station; thermal power is expected to continue to benefit from the performance improvements brought about by the increase in electricity volume and cost reduction. The installed capacity of new energy sources is growing rapidly, and there is plenty of room for future growth. We forecast that the company's net profit forecast for 2024-2026 is 8.39 billion yuan, 9.27 billion yuan, and 9.84 billion yuan, respectively, corresponding growth rates of 25.1%/10.6%/6.1%, EPS is 1.12 yuan, 1.24 yuan, and 1.32 yuan respectively. PE corresponding to the closing price on August 28 is 14.38X/13.00X/12.26X, respectively, maintaining a “buy” rating.

Risk factors: Domestic and foreign coal prices have risen sharply; incoming water from the watershed where the company's hydropower project is located is poor; electricity prices in Liangyang are uncertain; the construction of the company's new energy project has fallen short of expectations.