China Electric Power 2380.HK recently announced its 2024 mid-term operating results. The performance was impressive and in line with market expectations.

Coinciding with the 20th anniversary of China Electric Power's listing, the company distributed a special dividend of 0.05 yuan/share for the 20th anniversary. The company's performance has grown rapidly, and all business segments have performed well: in the hydropower sector, this year's incoming water supply was much better than in the same period last year, and the hydropower sector turned losses and profits increased dramatically; in the thermal power sector, the purchase price of coal dropped sharply, fuel costs were reduced, and profits nearly doubled; and clean energy companies acquired by wind power and photovoltaics in September last year contributed to profit growth. It is expected that in 2024, the company will build 7 GW of new wind power photovoltaics, and clean energy will account for more than 78% of the installed capacity by the end of 2024. The company aims to achieve the target of 90% of clean energy installations by the end of 2025. We expect hydropower and thermal power to maintain the profit growth trend in the second half of the year, and the expected power generation capacity will increase due to new energy installations. We believe that the current stock price corresponds to 7.6 times the PE forecast for 2024, and the annual dividend rate exceeds 7%, so there is room for improvement in valuation.

Report summary

China Electric Power's 2024 mid-term performance was impressive. In the first half of 2024, the company's revenue increased 24.2% year on year to 26.47 billion yuan, operating profit increased 66.7% year on year to 7.47 billion yuan, and net profit to mother increased 53.0% year on year to 2.57 billion yuan. Clean energy power generation continued to be one of the main drivers of the company's profit growth during the period. The profitability of clean energy companies acquired last year continued to show, with profits in the wind power and photovoltaic sector increasing 35% and 46% year on year; in the hydropower sector, incoming water supply improved drastically, driving the sector to turn losses into profits, and profits increased 622% year on year; in the thermal power sector, the average price of coal procurement fell 8% year on year, and profit increased 97% year on year. Coinciding with the 20th anniversary of the company's listing, a special dividend of 0.05 yuan/share was distributed to give back to shareholders. Furthermore, the company is expected to maintain a dividend ratio of more than 50%, and the annual dividend rate is expected to exceed 7%.

The share of clean energy installed has increased to over 75%. The company continues to optimize its current asset portfolio and increase the development and acquisition of clean energy assets. 2024H1 added 3.3 GW of self-built wind power and photovoltaic installations, accounting for 77% of clean energy installations (including hydropower, etc.). It is expected that by the end of 2024, the company will build its own clean energy installed capacity of about 7 GW, accounting for more than 78% of the company's clean energy installed capacity. The company strives to achieve the goal of 90% clean energy installed capacity by the end of the 14th Five-Year Plan. We expect the company's clean energy installation in the next 2 years to come from two parts: self-construction and mergers and acquisitions of high-quality clean energy assets.

Incoming water from 2024H1 hydropower has been greatly improved, and the hydropower sector is profitable. The company's hydropower installed capacity is 5.95 GW, accounting for 12.3% of the company's total installed capacity, mainly in Hunan, Guizhou and other provinces. 2024H1, rainfall in the watershed where the company's hydropower plant is located increased year-on-year. The flow rate of the company's largest hydropower plant, the Five Qiangxi Power Plant, is 10% higher than the historical average. The utilization hours of the company's hydropower projects increased 74% year-on-year to 1,821 hours, and electricity sales increased 90% year-on-year to 10,675 GWH, accounting for 16.6% of the company's electricity sales. Driven by power generation, revenue from the hydropower sector increased 81% to 2.69 billion yuan, and net profit turned a loss into a profit of 0.766 billion yuan.

Fuel costs for coal power have declined, and the thermal power sector has achieved profits. The revenue of the 2024H1 thermal power sector was basically the same as the same period last year at 11.64 billion yuan, and net profit increased 97% year over year to 1.107 billion yuan. The company holds 11.08GW of coal and electricity installed capacity, accounting for 23% of the total installed capacity. 2024H1 sells 26806 GWH of coal and electricity, accounting for 42% of the company's electricity sales. 2024H1 Thermal coal prices declined year on year due to sufficient domestic coal supply. The average fuel cost per unit of 2024H1 was 274 yuan/MWh, a year-on-year decrease of 8%. The decline in fuel costs has driven the coal and electricity sector's profits to nearly double.

Investment advice: 2024H1's net profit to mother increased by more than 50% year-on-year to 2.57 billion yuan. According to Bloomberg's unanimous expectations, China Electric's net profit to mother in 2024 is about 5.02 billion yuan. The current stock price corresponds to the 2024 forecast 7.6 times PE. The company values shareholder returns and promises a 50% dividend payout ratio. To coincide with the 20th anniversary of the company's listing, it will pay a special dividend of RMB 0.05 per share. The 2024 dividend rate is expected to be over 7%. We believe that the company's clean energy installation is rapidly increasing. It is the only Hong Kong stock listing platform for China Power Investment. It is expected that it will continue to acquire China Power Investment's high-quality clean energy assets. The dividend ratio is at a high level. We believe that there is room for improvement in current stock prices.

Risk warning: The progress of the acquisition of the parent company was slower than expected; financial expenses exceeded expectations; the power limit ratio for wind power photovoltaic projects increased.