1H24 returns to mother net profit yoy +5.3%, maintaining profit forecast/lowering target price

Southern Grid Energy released its semi-annual report. 1H24 achieved revenue of 1.324 billion yuan (yoy +1.6%), net profit of 0.205 billion yuan (yoy +5.3%), deducting non-net profit of 0.199 billion yuan (yoy +4.9%). Of these, 2Q24 achieved revenue of 0.748 billion yuan (yoy -1.0%) and net profit of 0.115 billion yuan (yoy +2.2%) to mother. We expect the company's 24-26 EPS to be 0.11/0.14/0.18 yuan, and the core EPS after excluding biomass losses will be 0.19/0.23/0.26 yuan. Comparable's 24-year Wind agreed that the average PE value was 21 times. The company's 24-26 EPS CAGR (30%, 47% if the biomass business is successfully divested) was higher than that of comparable companies (+20%), giving the company 48 times PE in 24 years (26 times the core EPS), a target price of 5.48 yuan (previous value 5.70 yuan), maintaining a “buy” rating.

Industrial and commercial photovoltaics maintained steady growth. At the end of June 24, the company's industrial and commercial photovoltaics had a year-on-year increase of 2.1 GW of new storage capacity, with 1H24 adding about 234 MW of installed capacity (12.5% increase from the beginning of the year); 1H24 industrial and commercial PV revenue yoy +12.7% to 0.563 billion yuan, and gross margin was -3.9 pp to 57.0% year on year, mainly due to increased rainfall and a decrease in radiation levels. The company benefited from Guangdong Province's distributed photovoltaic action plan. The Q1 and Q2 new reserve installations (through investment decisions) were 169.4/228.1 MW (yoy +22%/54%), respectively.

We expect the company's ongoing projects to be put into operation and contribute to performance over 24-25 years, helping the company maintain its leading position in the industry.

Revenue from building energy saving services declined slightly year-on-year. The 1H24 building energy saving business revenue, which continues to expand advantageous areas, is yoy -1.5% to 0.411 billion yuan, affected by the expiration and termination of some projects and the fact that new projects have not yet been put into operation; gross margin yoy-4.1pp to 14.4%, affected by reduced electricity savings of some projects and increased project transformation costs. The company continues to expand projects in the fields of hospitals, schools, communications, rail transit, etc., and there is a certain overlap between energy-saving construction customers and industrial and commercial photovoltaic customers, providing the company with a competitive advantage from rivals in developing the two businesses.

Decentralized wind power projects started, and biomass projects were all included in the 1H24 comprehensive resource utilization business revenue yoy -21.6% to 0.154 billion yuan. Mainly, biomass projects adopted a “minimized operation” strategy, and some agricultural and solar complementary projects were affected by grid power restrictions; gross margin was +4.3pp to 17.8%, thanks to decentralized wind power with strong profitability that began to contribute revenue. As of the end of June, the company's wind power/agricultural solar complementary scale had been put into operation at 80/346 MW. The installed capacity of 1H24's new wind power/agricultural and solar complementary reserves is 35/184.7 MW. The company's subsidized biomass projects were all included in the compliance list at the end of August. The subsidy amount must be reduced by 0.24 billion yuan, which will result in an impairment loss of 0.21 billion yuan over 24 years.

Risk warning: The scale of new PV installations falls short of expectations; the development of new photovoltaic projects falls short of expectations; risk of delays in renewable energy subsidies; and the economic benefits of contract energy management projects during the service period are uncertain.