The hydropower business was restructured into an A-share listing platform. The company announced the sale of its hydropower assets (5.9 gigawatts, about 60% of the shares) to Yuanda Environmental Protection (600292 CH; unrated), a company within the parent company Guodian Investment Group. Yuanda Environmental Protection plans to issue new shares to China Power as a purchase price. It is expected that China Electric Power will hold more than 50% of Yuanda's shares after the transaction, and will announce a detailed transaction plan around October 18.

A preliminary plan for further integration of the department's hydropower assets within three years has been set out. Management said that China Power Investment Group has 25.33 gigawatts of hydropower installed, including 23.3 gigawatts of domestic installed capacity, mainly distributed in Qinghai, Hunan, Yunnan, Guizhou, Sichuan, Chongqing, Guangxi and Jiangxi. Currently, China Electric Power's hydropower assets only account for about 24% of the parent company's total hydropower installed capacity. Management said that in the next 3 years, the parent company will integrate the remaining 20 gigawatts of hydropower assets into Yuanda Environmental Protection's A-share platform. The first step should be Huanghe Electric Power (about 11 gigawatts of hydropower installed). As for the future, after further asset injections, China Electric Power's shareholding in Yuanda may be reduced to less than 50%.

The logic of the transaction and the positioning of the Hong Kong stock listing platform in the future. We think this transaction can be viewed as the company's hydropower assets returning to A, and Yuanda Environmental Protection will become the hydropower platform of China Power Investment. The management also explained that this transaction takes full advantage of the high valuation of hydropower assets in the current A-share market. Regarding China Power's Hong Kong stock listing platform, China Power Investment Corporation has positioned China Electric Power as the flagship comprehensive clean energy listing platform focusing on hydropower, wind power, solar power, and high-quality coal power. As for China Electric Power's wind/solar assets, the management clearly responded that it would keep China Electric Power and continue with the overall plan to return to A.

There should be room for an increase in the valuation of the company's hydropower assets, and the purchase rating should be maintained. We currently value China Electric Power's Hydropower Division at 0.75 times the 2025 market account rate, which is a significant discount compared to about 3 times the market account rate of Changjiang Electric Power (600900CH; unrated) and Huaneng Hydropower (600025 CH; unrated). Our initial opinion is that the valuation of the company's hydropower division has an opportunity to increase the valuation target of 1.5 times or more of the market account ratio; taking into account the dilution of shareholding, the overall valuation is estimated to increase by HK$0.4-0.5 per share. We will revise the valuation after the company announces the transaction plan. Currently, the target price of HK$4.56 remains unchanged, and the buy rating is maintained.