The increase in material replacement and overhaul times and the decline in market-based electricity prices have put pressure on operations. In mid-2024, the company achieved operating income of 39.38 billion yuan, up 0.3% year on year; net profit to mother of 7.11 billion yuan, up 2.2% year on year; net profit after deducting non-return to mother of 6.96 billion yuan, up 0.1% year on year; EBITDA of 21.93 billion yuan, up 1.4% year on year; and ROE (diluted) reached 6.15%, down 0.2 pct year on year. By splitting the main business, electricity sales achieved revenue of 30.37 billion yuan, a year-on-year decrease of 1.8%, accounting for 76.9%; building installation and design services achieved revenue of 8 billion yuan, an increase of 6.7% over the previous year, accounting for 26.3%. The feed-in electricity capacity of nuclear power in operation was 106.01 billion kilowatt-hours, up 0.1% year on year. Among them, the feed-in electricity capacity of subsidiaries/joint ventures was 82.91/24.9 billion kilowatt-hours, respectively, down 0.2%/1.0% year on year. As the company completed 10 replacement and overhauls of nuclear power units in operation in the first half of the year, the overhaul time increased year-on-year, and the overall feed-in power supply was under pressure. In terms of electricity prices, due to the decline in market-based electricity transaction prices in some regions, the average settlement price of electricity by the company fell 2.1% year on year.

Costs are rising and gross profit is under pressure, costs are well controlled, and profitability remains stable. 2024H1 gross profit margin was 38.6%, down 4.1pct year on year. Mainly due to a 7.7% year-on-year increase in nuclear fuel costs and an increase in depreciation due to factors such as the commissioning of the new Fangchenggang No. 4 unit; the cost rate for the period was 9.3%, a decrease of 1.2 pct over the previous year. Among them, sales/management/finance expense ratios decreased by 0.0/0.0/1.2pct year-on-year, respectively. Mainly due to a decrease in financial expenses and an increase in exchange earnings; net interest rate/net return to mother interest rate were 27.6%/19.1%, respectively, down 0.2/0.3 pct year-on-year, respectively. Mainly due to VAT refunds, there is also a positive impact. Net operating cash flow was approximately $12.789 billion, down 18.44% from the same period last year, mainly due to maturing and repayment of notes payable.

10 new units+6 approved units, growth determined. As of the first half of 2024, the company managed a total of 28 units in operation and 10 nuclear power units under construction (including 6 units managed by the company's controlling shareholders), and is expected to be put into operation one after another in 2025. Among them, Lufeng Unit 5 completed dome hoisting on April 29, 2024 and entered the equipment installation stage. It is expected to be put into operation in 2027. In August 2024, the company obtained approval for 6 new units, and the company's medium- to long-term installed capacity has steadily increased. Looking ahead to the second half of 2024, operating factors are expected to remain relatively stable. Eight material replacements and overhauls will be carried out in the second half of the year, all decreasing month-on-month, and the impact of the overhaul on operations is expected to decrease.

Investment advice: The company's FY24-26 revenue is estimated to be 87.12/91.95/97.05 billion yuan, respectively. We assessed that the investment income showed a stable income trend, so we re-adjusted the investment income and made a positive profit forecast. The adjusted net profit forecast for FY24-26 was 18.7/20.27/21.83 billion yuan, with an adjustment margin of +15%/+14%/+13%. According to the DCF model (basic assumptions remain unchanged), the current target price was raised to HK$3.8 per share (+16%), maintaining the “superior to the market” rating.

Risks: Electricity demand falls short of expectations; progress of nuclear power projects falls short of expectations; risk of safe operation of nuclear power.