Key points of investment

Scenery's electricity sales increased strongly in the first 8 months of 2024, and high profit growth can be expected throughout the year:

According to preliminary statistics, the company's total electricity sales in August 2024 were 11,186,433 megawatt-hours, up 22.30% year on year; total electricity sales in the first 8 months of 2024 were 87,773,648 megawatt-hours, up 31.24% year on year. Among them, the company's wind power and photovoltaic sales increased strongly, with 70.22% and 78.13% year-on-year increases, respectively. The cumulative sales volume of wind power and photovoltaics increased 57.74% and 92.67% year-on-year respectively in the first half of the year. In the first half of the year, profit from the company's acquisition of the parent company's asset package increased by 34.87% and 46.47%, respectively, mainly benefiting from the incremental profit contribution of the acquisition of the parent company's asset package last year.

Thermal power achieved positive year-on-year growth in August, benefiting from falling coal prices. Thermal power's profit performance is expected to be good:

In August, the sales volume of the company's controlled and joint coal-fired power plants both achieved positive growth, up 6.11% and 1.87% year on year, respectively (down 16.31% and 13.46% year on year in July, respectively); the electricity sales volume of the company's controlled and joint coal-fired power plants fell 1.33% and 7.66%, respectively, but the decline was narrower than in the previous 7 months (cumulative year-on-year decrease of 2.51% and 9.17%, respectively). Benefiting from rising coal prices, the company's coal combustion costs fell by 8.01% in the first half of the year. The net profit of thermal power in the first half of the year was RMB 1.108 billion, an increase of 97.23% over the previous year. As hydropower output weakens, it is expected that the number of hours used by thermal power will pick up in the second half of the year, and thermal power performance will continue to improve throughout the year.

Hydropower sales declined sequentially in August, and hydropower generation is expected to increase by about 80% throughout the year:

Since the second quarter of this year, the riverside area where the company's hydropower is located has had plenty of incoming water, reaching the highest level in history in June and July. In the first half of the year, the company turned its hydropower losses into profit, and realized net profit of RMB 0.766 billion, an increase of 621.90%. Although it declined from month to month in August, hydropower generation is expected to be 21-22 billion yuan for the full year of 2024, an increase of 76%-85% over the previous year.

Maintain the buy rating and increase the target price to HK$4.50:

We updated the company's profit forecast and raised the company's target price to HK$4.50, corresponding to 10 times and 8 times PE in 2024 and 2025. The target price has room for +32% increase from the current price, maintaining the purchase rating.