SDIC Electric Power plans to issue shares to the Social Security Foundation, raising no more than 7 billion yuan for the construction of Mengdigou and Kala power plants; the company announced shareholder return plans for the next three years, increasing the dividend ratio from 50% to 55%.

SDIC Electric Power plans to issue shares to specific target social security foundations. The total amount raised will not exceed 7 billion yuan, at an issue price of 12.72 yuan/share, corresponding to the number of shares to be issued at 0.55 billion yuan. After issuance, the Social Security Fund's shareholding ratio was 6.88%, making it the third largest shareholder of the company. All of the capital raised this time will be used for the construction of the Yalong River hydropower project, including 4.5 billion yuan for Mengdigou Hydropower (total investment of 34.7 billion yuan) and 2.5 billion yuan for Kara Hydropower Station (total investment of 17.1 billion yuan). According to the company's estimates, the internal return on capital for both projects is 8%, and the joint operation with the Lianghekou Power Station has good regulation performance after commissioning, and the prospects for economic benefits are good. At the same time, the company announced a shareholder return plan for the next three years (2024-2026), insisting on paying dividends at least once a year, and further increasing the dividend ratio from 50% to 55%, reflecting the great importance it attaches to shareholder returns.

With fixed increases to broaden financing channels, the company's financial situation is expected to improve. The company's capital investment budget for 2024 was 34.65 billion yuan, which is a large investment scale. By the end of June 2024, the company's consolidated monetary fund balance was 13.156 billion yuan, and the parent company's caliber currency balance was 4.71 billion yuan. The company's capital requirements were imminent. This fixed increase will help broaden the company's financing channels, provide strong support for project construction, reduce the company's financial expenses, and optimize the balance and liability structure.

Long-term capital investment boosted confidence, and assigned directors further optimized the governance structure. On April 12, the State Council issued “Certain Opinions on Strengthening Supervision and Risk Prevention and Promoting High-Quality Development of the Capital Market”, which proposes vigorously promoting the entry of medium- and long-term capital into the market and continuing to expand long-term investment strength. Social security funds are typical long-term capital, and their investment decisions have a strong exemplary effect. This fixed increase fully reflects the Social Security Fund's affirmation of the value of scarce hydropower assets, and the Social Security Fund cannot transfer shares within 36 months as a battle investment, which helps to give full play to the “ballast stone” function of long-term capital, effectively sends a positive signal, and enhances investor confidence. In addition, the Social Security Fund will assign a director to the company, which is expected to help the company optimize its governance structure, connect the company with relevant strategic resources, and achieve win-win cooperation.

Profit forecasting and valuation. Since the second quarter, incoming water from the Yalong River Basin has improved dramatically, injecting impetus into the company's annual performance growth; coal prices are expected to remain low, and the company's thermal power profitability has been further restored; relying on the Yalong River to lay out a comprehensive water and landscape energy base, new energy sources continue to release performance; and the dividend ratio continues to rise, highlighting long-term investment value. Maintain the company's 2024-2026 net profit forecast of 7.698, 8.501, and 9.559 billion yuan, with year-on-year increases of 14.8%, 10.4%, and 12.4%; current stock prices correspond to PE at 14.9x, 13.5x, and 12.0x, respectively, maintaining the “increase” rating.

Risk warning: Incoming water falls short of expectations, coal costs are higher than expected, feed-in tariffs fluctuate, and progress of new energy projects is lagging behind.