Introduction to this report:

2Q24 The company's performance was basically in line with expectations; sufficient reserves of clean energy resources combined with accelerated capital expenditure, and installed capacity is expected to continue to grow.

Key points of investment:

Maintaining the “Overweight” rating: Maintaining the 2024/2025/2026 EPS to 0.48/0.55/0.61 yuan. Referring to comparable companies in the industry and considering the tight supply and demand of electricity in Yunnan, PE was given 24 times in 2025, the target price was raised to 13.20 yuan, and the “gain” rating was maintained.

The 2Q24 results were generally in line with expectations. The company's 1H24 revenue was 11.9 billion yuan, +13.1% YoY (adjusted); net profit to mother was 4.17 billion yuan, +22.5% YoY (adjusted). The company's 2Q24 revenue was 7.46 billion yuan, +33.3% YoY; net profit to mother was 3.1 billion yuan, +32.1% YoY, which is basically in line with our previous expectations.

Q2 There was a year-on-year increase in hydropower, and Toba's first unit was put into operation as scheduled. 2Q24's feed-in electricity was 30.2 billion kilowatt-hours, +41.7% year-on-year; of these, hydropower feed-in electricity was 29.2 billion kilowatt-hours, +39.7% year-on-year. The high increase in the company's Q2 hydropower feed-in capacity was mainly due to: 1) the 1H24 Lancang River Basin had a year-on-year increase of about 30% of incoming water, with incoming water from the Wulonglong/Xiaowan/Nuozadu sections being 30%/31%/29% higher year over year, respectively; 2) The company actively coordinated the power grid to speed up the decline in pre-flood water levels. 2Q24's new energy feed-in capacity was 1 billion kilowatt-hours, +143% year-on-year, mainly benefiting from the year-on-year increase in the installed capacity of new energy sources. We estimate that 2Q24's electricity revenue was 0.247 yuan/kilowatt-hour, or -5.9% (+9.6% compared to 2Q22). We estimate that this may be mainly due to the year-on-year increase in the share of electricity during the 2Q24 flood season. 1H24 strengthened lean management throughout the process. The three expenses saved 0.315 billion yuan compared to the calendar schedule; comprehensive financing costs were reduced to 3.0%, -0.4 ppts year-on-year.

Clean energy resources are abundant, and capital expenditure is accelerating to open up room for installed growth. As of 1H24, the company's total installed capacity was 29.2 GW, +20.0% year-on-year. The company has sufficient clean energy resources under construction: 1) As of 1Q24, the company is mainly constructing 5.1 GW of hydropower projects, of which Toba (0.35 million kilowatts of the first unit 1 of the Toba Hydropower Station has officially entered commercial operation in June 2024)/Jiaojiangbao/Tibet hydropower stations have a total installed capacity of 1.4/1.1/2.6 GW, according to the current plan, the total installed capacity of 8 cascade hydropower plants in the upper reaches of the Lancang River; 2) As of 1Q24, the total installed capacity of the 8 cascade hydropower plants in the upper reaches of the Lancang River is 1.6 GW; 2) As of 1Q24, the total installed capacity of the 8 cascade hydropower plants in the upper reaches of the Lancang River is 1.6 GW; 2) As of 1Q24, the total installed capacity of the 8 cascade hydropower plants in the upper reaches of the Lancang River. The company paid 7.17 billion yuan in cash for the purchase and construction of fixed assets, intangible assets and other long-term assets at 1H24, +23.1% over the same period last year.

The company has sufficient reserve resources for clean energy projects and accelerated capital expenditure. We expect that the installed capacity of clean energy will continue to grow for a long time in the future.

Risk warning: Incoming water falls short of expectations, market-based electricity price increases lower than expected, etc.