Introduction to this report:

3Q24 electricity capacity increased year-on-year, and performance grew steadily; the company has plenty of capacity under construction and reserves, and there is plenty of room for long-term growth.

Key points of investment:

Maintain the “Overweight” Rating: Maintain the 2024-2026 EPS of $0.23/0.25/0.26, maintain the target price of HK$3.90, and maintain the “Overweight” rating.

3Q24 results were in line with expectations. The company's revenue from 1-3Q24 was 62.27 billion yuan, +4.1% year-on-year; net profit to mother was 9.98 billion yuan, +2.9% year-on-year. 3Q24 revenue was 22.89 billion yuan, +11.3% YoY; net profit to mother was 2.87 billion yuan, +4.9% YoY. The performance was basically in line with our expectations.

Electricity consumption increased year-on-year, and performance increased steadily. The company 3Q24 held 48.3 billion kilowatt-hours of feed-in electricity, +15.2% year-on-year, mainly benefiting from the increase in installed capacity (Fangchenggang Unit 4 put into operation) and Taishan nuclear power restart; among them, Taishan Nuclear Power 3Q24 had a feed-in capacity of 6.2 billion kilowatt-hours, +90.6% year-on-year. The 3Q24 joint venture's feed-in electricity capacity was 12.6 billion kilowatt-hours, +12.8% year-on-year, mainly related to the reduction in the total time required for material replacement and overhaul. The company's 3Q24 gross profit was 7.68 billion yuan, +7.4% year over year; operating profit was 5.64 billion yuan, +6.0% year over year. We believe that the company's 3Q24 profit growth rate is mainly related to the increase in costs and expenses: 1) 3Q24 operating costs 15.21 billion yuan, +13.4% year over year. We speculate that it is related to the increase in nuclear fuel costs due to the high increase in nuclear power in Taishan and the increase in operation and maintenance costs after the new unit is put into operation; 2) the 3Q24 R&D cost rate is 2.5%, +0.7 ppts year over year.

The installed equipment is progressing steadily, and there is plenty of room for long-term growth. According to the State Council's “Opinions on Accelerating the Comprehensive Green Transformation of Economic and Social Development”, the construction of clean energy bases such as northwest wind power photovoltaics, southwest hydropower, offshore wind power, and coastal nuclear power will be accelerated. In August 2024, the National Standing Committee approved 11 new nuclear power units. Of these, the company approved 6 new nuclear power units, the highest number of approvals in recent years (2/2/2/4 nuclear power units were approved from 2019 to 2023, respectively). By the end of 3Q24, the company had managed a total of 16 nuclear power units that had been approved for FCD and were under construction (including 8 units commissioned by the controlling shareholder). Of these, 7 had already started construction (total installed capacity 8.4 GW), and 9 were in the FCD preparation stage (total installed capacity 11.0 GW). We believe that the company has plenty of equipment under construction and reserves, and there is plenty of room for long-term growth.

Risk warning: The price of nuclear power is lower than expected, the number of hours of use of nuclear power falls short of expectations, and the progress of nuclear power installation construction falls short of expectations.