Key points of investment:

The company released its 24-year semi-annual report: 24H1 achieved revenue/net profit of 18.9/3.83 billion yuan, YOY -4.9%/-22.9%. Q2 achieved revenue/net profit to mother of 9/1.43 billion yuan, YOY -10%/-45.4%.

Resources are disrupted, and the volume and price of wind power are under pressure. The calculation company's net profit for 24H1 electricity was 0.098 yuan, -0.031 yuan year-on-year. (1) Electricity prices: The average electricity price for 24H1 wind power is 0.441 yuan/degree, -0.028 yuan/degree; the average price of photovoltaics is 0.283 yuan/degree, -0.031 yuan/degree year on year, mainly due to an increase in the share of electricity in the market and affordable projects; the price of thermal power (located in Jiangsu) is 0.415 yuan/degree, the same as the previous year. (2) Utilization hours: Calculate the company's 24H1 electricity depreciation of 0.133 yuan, +0.006 yuan year on year. The main reason is the impact of wind resources. The 24H1 wind power utilization hour is 1,170 hours, -101 hours year on year, and the wind speed is -0.25 m/s year on year.

The company continues to obtain high-quality resource development indicators. 24H1 signed a new development agreement of 7.59 GW, including 3.955 GW of wind power and 3.635 GW of photovoltaics, all located in regions with good resources. The company obtained development indicators of 6.09 GW, YOY+ 51.87%, including 2.81 GW of wind power and 3.28 GW of photovoltaics.

The parent company's 4 million kilowatt energy installed assets will be injected. When the company first went public in 2022, it promised to promote the Group's continuous wind power asset injection and thermal power business integration through asset restructuring and other forms within three years (22-24). According to the company's July announcement, China Energy Group, the controlling shareholder, plans to begin injecting some new energy assets into the company. The installed capacity of new energy is estimated to be about 4 million kilowatts, and the initial plan is to inject them in batches.

The company is promoting the divestment of thermal power assets. The company and its wholly-owned subsidiary Xiongya will sell 27% of Jiangyin Sulong's shares. The winning bidder is Jiangyin Electric Power, with a transaction price of 1.319 billion yuan. After the transaction is completed, the company's installed capacity will be reduced by 1.24 million kilowatts, of which thermal power and photovoltaic installations will be reduced by 1.215/0.0258 million kilowatts respectively.

Based on the evaluation reference date, the Company expects to obtain pre-tax revenue of approximately $0.51 billion (including 24-year investment income) from this sale. Jiangyin Sulong's 2023 net profit was 0.485 billion yuan, net assets were 3.38 billion yuan, transaction valuation PE was 10.1x, and PB was 1.5x.

Profit forecasting and valuation. We expect the company's 24-26 EPS to be 0.78/0.85/0.92 yuan. Comparable to the company's 24-year average PE 13 times. As a green electricity leader, the company also has asset injection expectations. A valuation premium can be given, giving the company 20-22 times PE in 24 years, corresponding to a reasonable value range of 15.6-17.16 yuan, maintaining an superior market rating.

Risk warning. The installed capacity growth rate is lower than expected, asset injection is progressing slowly, and there is pressure on the price of new energy electricity due to “big generation and small” calculation of depreciation, etc.