occurrences

On September 17, the company announced that it intends to issue 0.55 billion A-shares to the Social Security Foundation at a price of 12.72 yuan/share. The capital raised will not exceed RMB 7 billion. The net amount of capital raised after deducting the relevant issuance fees will all be used for the construction of Kara and Mengdigou hydropower projects in the Yalong River basin.

Investment Requirements

The total share capital increased by 7.4%, reducing financial burdens and increasing the momentum for clean energy business development.

The total share capital of the company was 7.45 billion before this issuance. After the issuance, it is expected to reach 8 billion shares, and the total share capital will increase by about 7.4%. But maneuvering is effective in reducing the company's balance-to-debt ratio. As of 1H24, the company's balance ratio reached about 63.8%; after the capital raised is in place, the company's balance ratio is expected to drop by about 1.5 pcts to 62.3%. Based on the assumption that the company's comprehensive average financing cost is 3.0%, 7 billion capital is expected to save about 0.21 billion yuan in interest expenses each year.

The capital raised was used to build the Yalong River Kala and Mengdigou hydropower stations, and the internal return on the project capital is expected to reach 8%. In recent years, the company's clean energy business has developed rapidly. According to the announcement, the funds raised will be used for the construction of Kala and Mengdigou hydropower projects on the Yalong River.

Among them, the Mengdigou hydropower project has a planned installed capacity of 2.4 million kilowatts and a total investment of 34.72 billion yuan. The Kara hydropower project has a planned installed capacity of 1.02 million kilowatts and a total investment of 17.12 billion yuan. The total investment amount for the two hydropower plants is about 51.84 billion yuan, and the capital raised accounts for about 13.5% of the total investment. At present, China's conventional hydropower development rate is over half, while the middle reaches of the Yalong River still has potential for development, and the company's hydropower installed capacity still has room to grow. The joint operation of the newly built Kara and Mengdigou hydropower stations and the two estuaries of Longtou Reservoir can play a peak-shifting role, and can fully reflect the benefits of cascade compensation in the watershed. The internal return on capital of both hydropower projects is expected to reach 8%, with good profitability.

In principle, the dividend ratio for 24-26 is not less than 55%, and dividends are paid at least once a year. On the same day, the company released the “Shareholder Return Plan for the Next Three Years (2024-2026)”, which proposes that dividends at least once a year for 24 to 26 years, and that the profit distributed in cash every year is in principle not less than 55% of the consolidated statement distributable profit achieved in the current year, an increase of 5.0 pct from the minimum dividend ratio promised in the “Next Three Year (2021-2023) Shareholder Return Plan” released in 2021. In addition to focusing on shareholder returns, the company itself is also expected to promote a further reasonable increase in the dividend ratio by introducing social security as a strategic investor.

Profit Forecasts, Valuations, and Ratings

Maintain the company's forecast of achieving net profit of 7.71/8.36/9.14 billion yuan in 24-26, respectively. Without considering additional issuance, the current stock price corresponds to PE valuations of 15 times, 14 times, and 13 times, respectively.

Risk warning

Incoming water conditions, falling coal prices, demand for electricity, risk of new energy installations falling short of expectations; risk of electricity price fluctuations, etc.