Core views:

Incoming water improved, costs decreased, and 2024H1 performance increased 29% year over year. The company released its 2024 mid-year report. 2024H1 achieved operating income of 34.808 billion yuan (+12.38% year over year after adjustment) and net profit of 11.362 billion yuan (+27.92% after adjustment), of which Q2 net profit to mother was 7.395 billion yuan (+40.35% year over year), mainly due to the low electricity base for the same period last year and the increase in electricity volume after the water supply improved this year. In addition, the company continued to repay loans, replace high-interest debt, and reduce financial expenses. 2024H1's financial expenses decreased by 0.641 billion yuan year on year (a decrease of 10.2%), and management expenses and R&D expenses were +24% and +77%, respectively; the company continued to invest in domestic hydropower company shares, and 24H1's investment income increased 8.9% year over year. The company's non-operating expenses in the first half of the year were 0.384 billion yuan, mainly external donations and storage area maintenance expenses. Last year, it was mainly concentrated in the second half of the year.

Incoming water returned to a high level of water storage, and power generation increased markedly in the second quarter. According to the business announcement, incoming water improved in 2024H1, and the company completed 120.6 billion kilowatt-hours of power generation (+16.9% year over year). Of these, 24Q2 power generation increased by 42.5% year on year, and the company saved water and increased power generation by 4.466 billion kilowatt-hours in the first half of the year.

The company plans to achieve a power generation capacity of 307.4 billion kilowatt-hours under normal water conditions. The electricity volume growth will continue in July and August. Currently, upstream power plants are gradually starting to store water. In the second half of the year, in addition to recovering incoming water, high water levels will also improve power generation efficiency. At the same time, it is expected that the six banks will jointly increase power generation capacity.

Performance is improving, dividends are stable, and the utility benchmark is moving towards DDM. The increase in the company's electricity volume in 2024 will drive performance growth. At the same time, it promises a 70% dividend rate of 145. DDM valuation can be used when dividend expectations are stable. In addition, the company's power plant is promoting capacity expansion and capacity expansion, and is leading the development of the Jinsha River downstream water scenery base. As of 2024H1, it will take over 2.65 million kilowatts of installed capacity for operation and maintenance. Promote savings construction, take over the Changlongshan Pumping Station, complete investment decisions on multiple savings projects, release profits by reducing depreciation and financial expenses, and there is still room for growth.

Profit forecasting and investment advice. The company's net profit for 24-26 is estimated to be 34.3/35.9/38.1 billion yuan, respectively, and PE corresponding to the latest closing price is 21/20/19 times, respectively. Incoming water has improved and performance has been restored, and the 14th Five-Year Plan promised a 70% dividend rate. As a hydropower faucet, with reference to comparable companies, the company was given a PE valuation of 23 times in 24 years, corresponding to a reasonable value of 32.20 yuan/share, maintaining a “buy” rating.

Risk warning. Fluctuations in incoming water; risk of feed-in tariff adjustments; risk of investment returns falling short of expectations.