Earnings continued to improve in the first half of the year: In the first half of 2024, the company achieved operating revenue of HK$51.1 billion, which was basically the same as the previous year, resulting in net profit of HK$9.363 billion, an increase of 38.9% over the previous year. Among them, the core renewable energy business owes a profit of HK$5.556 billion, a year-on-year decrease of 6.7%. The thermal power business realized a profit of HK$2.7 billion, an increase of 232% over the previous year, and a core profit of HK$2.7 billion contributed by the reduction in raw material costs. The company plans an interim dividend of HK$0.455 per share.

Thermal Power dropped significantly, and profits were released significantly: the company's electricity sales in the first half of the year increased by 3.3% year-on-year. Thanks to the relatively easy supply of coal, coal prices fell sharply in the first half of the year, the company's unit fuel cost fell 10.7% year-on-year in the first half of the year, and thermal power profitability continued to recover. In addition, the contribution revenue of thermal power auxiliary services was 787 million yuan, the cost of supporting energy business services was about 344 million yuan, and net profit was 443 million yuan, an increase of 5% over the previous year. The company's gross margin of the thermal power business increased by 9.6 pct year-on-year in the first half of the year, and is in a leading position in the industry.

Revenue from new energy sources was being pressured by wind speed, and the equipment was realized at an accelerated pace: by the end of July, the company's cumulative number of new machines had exceeded 1100 megawatts. Wind power and photovoltaics increased their electricity sales by 6.9%/204.9% year over year thanks to newly put into production. However, due to poor weather conditions in the first half of the year, the average wind speed in the first half of the year dropped by 0.2 meters, and the number of hours used decreased by 97 hours compared to the same period, which affected the profit of new energy sources by HK$9-10 billion. In addition, the price of wind power and photovoltaic power fell by 4%/11%, leading to a year-on-year decrease of HK$400 million in profits from the new energy business. The company is currently building 7,532 megawatts of wind appliances and 8011 megawatts of photovoltaic equipment. The target is to add 10 gigawatts of new energy and networked machines throughout the year. Currently, the prices of photovoltaic components and fans have declined markedly, construction costs for new projects continue to be optimized, and project yields can still be maintained at an impressive level under pressure relief and declining electricity prices. The profitability of the company's new energy business is expected to grow steadily as the company's new energy equipment enters a period of accelerated cashing.

The target price is HK$24.5, maintaining the purchase rating: The company's thermal power business continued to recover in the first half of the year. Profits in the new energy business were under pressure due to poor wind conditions and declining photovoltaic consumption, but the profitability of new energy sources was still leading the industry, fully reflecting the company's excellent governance capabilities. Looking ahead to the whole year, the company's fuel costs are expected to remain stable, and production of the new equipment will be accelerated in the second half of the year. Furthermore, most of the company's power plants are concentrated in regions with strong electricity demand, and profitability will still lead the industry. We estimate that the company's net profit for 2024-2026 will be HK$148/168/18.8 billion, an increase of 34%/14%/12% over the same period last year. The target price was adjusted to HK$24.5, maintaining an 8 times PE ratio in 2024, with room for 19% increase compared to the current price, and maintaining the purchase rating.

Risk factors: New machines fell short of expectations, electricity demand fell short of expectations, grid electricity prices dropped sharply, and the contract rate of Changxie Coal dropped sharply.