Incident: The company released its 2024 mid-year report. The first half of the year achieved operating income of 18.883 billion yuan, a year-on-year decrease of 4.94%, and realized net profit to mother of 3.827 billion yuan, a year-on-year decrease of 22.86%.

Poor wind conditions have dragged down performance, while feed-in tariffs have declined. The company added 0.595 million kilowatts of wind power installed in the first half of the year, but due to poor wind conditions, the company achieved wind power generation of 31.5 billion kilowatt-hours in the first half of the year, a year-on-year decrease of 4.60%. The average number of hours used by wind power was 1,170 hours, a decrease of 101 hours over the previous year. At the same time, due to the increase in consumption and affordable projects, the company's average feed-in electricity price for wind power in the first half of the year was 441 yuan/megawatt-hour (VAT not included), a decrease of RMB 28 per megawatt hour from 469 yuan/megawatt hour (excluding VAT) in the same period in 2023, a decrease of 6.35%, which is an important reason for the decline in performance.

Selling thermal power assets and returning funds to focus on the main energy industry. The company announced in June 2024 that it plans to transfer 27% of Jiangyin Sulong's shares. After the transaction is completed, the company's installed capacity will be reduced by 1.2408 million kilowatts, of which the installed thermal power plant will be reduced by 1.215 million kilowatts.

According to the August announcement, the sale price was 1.319 billion yuan.

Construction of new energy has been accelerated, and 7.5 GW of production is planned to be put into operation throughout the year. Asset injection is worth paying attention to. The company plans to start 10 GW of new energy projects and put into production 7.5 GW in 2024. According to the company's semi-annual report, the company signed a new development agreement of 7.59 GW in the first half of the year and obtained a development target of 6.09 GW, an increase of 51.87% over the same period last year. 2.29 GW of new energy installations were put into operation in the first half of the year, including 1.69 GW of photovoltaic installations and 0.60 GW of wind power installations. Furthermore, the National Energy Group signed an “Agreement to Avoid Competition in the Industry” with the company in early 2022, promising to effectively promote the injection of a total of 21.4067 million kilowatts of its other wind power assets into Longyuan Electric Power through asset injection, joint venture formation, and asset replacement. The company announced in July that the National Energy Group 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 it in batches.

In our analysis, the core factors limiting Green Power's stock price are market concerns about the yield of new projects. Behind this, the disadvantages of unstable new energy sources were exposed too early, and the pressure on the power system consumption exceeded expectations. Overall, however, we are analyzing the current point of analysis. There is a real downturn in the green power sector, but the response has been quite adequate. The benefits are gradually accumulating, and the logic of the industry's long slope and heavy snow has not changed. The biggest undercard of the new energy industry is the hard restraint of the dual carbon strategy. Currently, the country's attitude is still firm, and long-term demand is worth looking forward to. We believe that with digestion over time, investment in green power will eventually return to rationality. Under multiple benefits such as rectifying chaos, rising demand, and lower prices upstream in the industrial chain, the return on the operating side is expected to be close to that of stable utilities throughout the entire industry chain. Relevant policy advantages are expected to be a catalyst for the company's trending market.

Profit forecast and rating: Combined with the company's installation plan, we forecast net profit (after deducting interest on perpetual bonds) attributable to the parent company's ordinary shareholders in 2024-2026 to be 5.951, 6.873, and 7.315 billion yuan (6.73, 7.439, and 8.089 billion yuan before adjustment, respectively), and the current stock price corresponds to 7, 6, and 6 times PE. The company is a benchmark company in the green power sector. The stock price trend is closely related to the development of the entire industry and maintains a “buy” rating.

Risk warning: Incoming water fluctuates, electricity prices fall short of expectations.