Incident: The company released its 2024 interim report. The first half of the year achieved revenue of 34.808 billion yuan, +12.38% year over year, and achieved net profit of 11.362 billion yuan (net of 11.37 billion yuan), and +27.92% year over year (not +33.83%). In the 24Q2 single quarter, Li Du achieved revenue of 19.167 billion yuan, +23.05% year-on-year, and achieved net profit to mother of 7.395 billion yuan (net of 7.391 billion yuan), or +40.35% (not +50.04% year-on-year).

Increased profitability and good cash flow: 24H1, the company's ROE (weighted) was 5.56%, +1.28pct. The gross profit margin was 52.38%, +2.45pct year on year; the period expense ratio was 18.76%, -3.87pct year on year, mainly due to the decrease in financial expenses ratio of 4.08pct to 16.23%. In 24H1, the company achieved a net operating cash flow of 22.984 billion yuan, a year-on-year decrease of 8.38%, mainly due to an increase in electricity bills receivable compared to the beginning of the period.

The abundance of incoming water drives the growth of the main business, and the return on investment is steady, moderate and positive: 24H1, the total volume of incoming water from Wudongde Reservoir was about 36.66 billion cubic meters, which was 11.40% higher than in the same period last year; the total amount of incoming water from the Three Gorges Reservoir was about 147.941 billion cubic meters, which was 19.67% higher than in the same period last year. Based on this, 24H1, the total power generation capacity of the company's six cascade power plants was about 120.618 billion watt-hours, an increase of 16.86% over the previous year. Among them, 2402 generated about 67.871 billion ten watt-hours, an increase of 42.54% over the same period last year. At 24H1, the company achieved investment income of 2.892 billion yuan, an increase of 8.79% over the previous year. Among them, Hubei Energy, Guiguan Electric Power, Yunnan Huadian Jinsha River Midstream Hydropower Development Company, and Shenneng Co., Ltd. contributed 4.32, 0.163, 0.167, and 0.27 billion yuan respectively, up 63%, 116%, and 23% year-on-year.

The incoming water reform continued to be fully released, and the pre-locked 24 and 2 power generation capacity was still improving year over year: taking the Three Gorges Reservoir as an example, the average inbound flow and outbound flow in July 2024 reached 32122.6 and 30290.3 m3/s respectively, far higher than 19614.0 and 18126.9 m3/s in the same period of 2021-2023, and the trend of improving incoming water continues. Furthermore, after the injection of the Wudongde and Baihetan power plants in April 2023, the company upgraded from “four-bank joint conversion” to “six-bank joint conversion”. In 2023, cascade power plants saved 12.13 billion and increased power generation by 12.13 billion in watt-hours, accounting for 4.4% of the company's total power generation. However, considering that the benefits of joint modulation are not fully realized due to water depletion in 2023; in 2024, as incoming water from the watershed gradually returns to normal, the benefits of joint scheduling and generation of the East German and Baihetan Power Station are expected to be better reflected.

Focusing on the integration of water, landscape and solar storage, the pumped energy storage business continues to advance: while insisting on strengthening and improving the main hydropower business, the company lays out the pumped energy storage business with high quality. On 24H1, Zhejiang Datai Pumped Storage Power Station (17C square kilowatts) stopped preparations for electricity production, Chongqing Fengjie Caiziba Pumped Storage Power Station (120 square meters and 10 watts) completed investment decisions, Hunan Shouxian Guanghanping Pumped Storage Power Station (180 square watts) completed equity transformation and investment decisions, and the storage business blossomed a lot.

Investment recommendation: The company is expected to achieve net profit of 34.314, 36.109, and 37.435 billion yuan in 2024-2026, respectively, corresponding to PE20.95X, 19.91X, and 19.20X, maintaining the recommended rating.

Risk warning: risk of fluctuations in incoming water; risk of fluctuations in electricity prices, etc.