The company's net profit for 3Q24 was in line with expectations. Earnings on hydropower investment were +20% of the company's 1-9M24 operating income/net profit of 1.087/4.422 billion yuan, +6.5%/+15.1% YoY; 3Q24 operating revenue/net profit to mother was 0.483/2.12 billion yuan, +2.1%/+21.6% YoY, and net profit to mother was in line with our expectations of 1.973-2.329 billion yuan. In 3Q24, thanks to a sharp year-on-year increase in incoming water, the Yalong River Hydropower and Guoneng Dadu River power generation, in which the company participated, increased year-on-year, causing the company's investment income in joint ventures and joint ventures to +0.331 billion yuan year on year, accounting for 88% of the year-on-year increase in net profit to mother. In order to advance the construction of the Yalong River project, the company plans to increase the capital of Yalong River Hydropower by 7.2 billion yuan, which may boost the company's balance ratio. We expect the company's net profit to be 5.069/5.268/5.565 billion yuan for 24-26, corresponding to EPS of 1.04/1.08/1.14 yuan. Referring to a 25-year average PE17.2x, the comparable company Wind is optimistic that the integrated development of the Yalong River's waterscape will bring long-term value increases. The company will be given a target PE of 19.5x in 25 years, corresponding to a target price of 21.07 yuan (previous value: 22.20 yuan), which is a “purchase”.

3Q24 held hydropower feed-in prices were +4.6% year-on-year, and financial expenses maintained a downward trend in 3Q24. The company held hydropower feed-in electricity volume +1.3% YoY to 2.193 billion kilowatt-hours, and feed-in tariffs were +4.6% YoY (up 0.7 points/kWh) to 0.167 yuan/kWh. At the photovoltaic level, 3Q24's PV feed-in electricity volume increased sharply by 46.1% year-on-year to 0.111 billion kilowatt-hours. This was mainly due to the increase in PV installed capacity controlled by the company, but the addition of affordable grid-connected installations and Guangxi electricity market transactions made the company's PV feed-in price -20.9% to 0.487 yuan/kilowatt-hour compared to the same period last year. In 3Q24, the company's financial expenses maintained a downward trend, -17% to 0.128 billion yuan, and the cumulative year-on-year decline in the first three quarters of 2024 was 0.125 billion yuan to 0.344 billion yuan.

3Q24 The Yalong River's hydropower generation capacity may have increased sharply year over year. The company plans to increase Yalong River hydropower by 7.2 billion yuan 3Q24, and the company's investment income in joint ventures and joint ventures is +0.331 billion yuan. We believe that most of this is contributed by Yalong River Hydropower, where the company holds 48% of its shares. According to high-frequency statistics from the Sichuan Hydrological Network, the outbound flow rate of the Ertan, Jinping Level 1, Guandi Hydropower Station on the Yalong River was +63%/+68%/+41% compared to the same period in 3Q24. As of October 14, the water storage capacity of the above three hydropower plants was +9%/+24%/-2%, respectively, laying a good foundation for electricity generation during the subsequent dry season. The company and SDIC Electric Power plan to jointly increase the capital of 15 billion yuan to Yalong River Hydropower Currency, of which the company invested 7.2 billion yuan, and the Yalong River distributed a cash dividend of 2.88 billion yuan to the company in 2023. The company's monetary capital as of the end of September was 0.9 billion yuan. We believe this capital increase may increase the company's balance ratio level. The company's balance ratio by the end of September 2024 is 32.17%.

Risk warning: Hydropower generation falls short of expectations due to dry incoming water; feed-in tariffs for hydropower fall short of expectations.