Hydropower/thermal power profit continued to improve, 1H24 net profit to mother +58% year-on-year

The company's 1H24 revenue/net profit was 9.821/1.426 billion yuan, +8.05%/+58.14% year over year; in 2Q24, the company's revenue/net profit to mother was -7.63%/+9.33% to 4.615/0.646 billion yuan. The high year-on-year increase in net profit due to incoming water restoration in the first half of the year was mainly due to incoming water restoration. The company's hydropower generation capacity was +67.19% year over year; coal prices fell year on year, and net profit from thermal power was +281% to 0.452 billion yuan. We estimate that the company's net profit for 24-26 will be 3.026/3.21/3.441 billion yuan. The company's net profit from new energy sources is expected to be 0.446 billion yuan, and the net assets of hydropower/thermal power to mother are 13.7/4.1 billion yuan. Refer to comparable company Wind's consistent expectation of 24E PE/PB/PB with an average value of 15.5/2.7/0.91x, considering: 1) there is a gap between the company's future installed capacity of new energy sources compared to comparable companies; 2) Comparable companies have better hydropower regulation than the company; 3) New Energy Comparable Company's valuation includes expectations, giving the company 24E PE/PB/PB 14.5/2.5/ 0.85x, target market value 44.2 billion yuan, target price 6.80 yuan (previous value: 6.79 yuan), “buy”.

Coal trade revenue declined year-on-year due to changes in development strategies, and thermal power performance continued to improve

1H24, in order to play the role of an internal procurement platform, the company actively reduced external coal procurement business, resulting in a year-on-year decrease of 1.041 billion in coal trade revenue, but the gross margin of the coal trade and transit warehousing business was +17.67pp to 26.25% year-on-year. In 1H24, the company's thermal power generation capacity was +16.54% to 11.243 billion kilowatt-hours, of which 2Q24 was +22% to 5.157 billion kilowatt-hours. In the face of a sharp year-on-year increase in hydropower generation in Hubei Province, the company's thermal power generation still increased year-on-year mainly due to the year-on-year increase in effective thermal power production capacity during the reporting period. In addition, thanks to the year-on-year decline in coal prices, 1H24's net profit in the thermal power sector was +281% to 0.452 billion yuan, and the net profit of thermal power generation (due to the company's undisclosed electricity sales volume, the estimated value is slightly smaller) was as high as 4 points, +2.8 points year on year.

Incoming water increased sharply year on year. The trial operation of electricity spot trading in Hubei Province put pressure on 1H24. The company's hydropower generation capacity was +67.19% to 6.93 billion kilowatt-hours, of which 2Q24 was +20% to 3.465 billion kilowatt-hours, driving the company's 1H24 hydropower net profit +133% year over year to 0.869 billion yuan, and the net profit of electricity reached 0.125 yuan (the denominator at the time of calculation), +3.5 points year over year. In 1H24, the company's wind/photovoltaic power generation capacity was -6.66%/+47.43% to 0.967/1.834 billion kilowatt-hours, of which 2Q24 wind power generation was -26% year-on-year. We believe it is mainly due to the year-on-year decrease in incoming wind during the reporting period and the year-on-year increase in the electricity abandonment rate due to the large number of new energy installations connected to the grid. According to the company's semi-annual report, Hubei Province launched the second round of long-term settlement trial operation. Competition in the electricity spot market is fierce, and electricity prices in the new energy market have dropped. All in all. 1H24's net profit from new energy sources was -34% YoY to 0.241 billion yuan.

Risk warning: Changxie coal guarantee/feed-in tariffs, new energy development/incoming water falls short of expectations.