Southern Grid Energy announced third-quarter results: revenue of 0.955 billion yuan, +7% YoY, +28% month-on-month; net profit to mother -0.052 billion yuan, same year/month-on-month loss; deducted non-net profit -0.053 billion yuan, month-on-month loss. In the first three quarters, the company achieved revenue of 2.279 billion yuan, +4% year on year; net profit to mother 0.152 billion yuan, -56% year over year; deducted non-net profit of 0.146 billion yuan, -57% year over year. The company's net profit for the third quarter was higher than our expectations (-0.68 to -0.062 billion yuan). Industrial and commercial distributed photovoltaics led to an increase in overall revenue, and the installed capacity of new reserves increased year-on-year. Subsidies for biomass projects have been reduced in value, and the comprehensive utilization of resources has contributed to an increase in new businesses. Maintain a “buy” rating.

Industrial and commercial photovoltaics led to an increase in overall revenue. The year-on-year increase in new storage capacity took into account the successive commissioning of the company's reserve projects, and the company's industrial and commercial photovoltaic operation scale was not less than 2.1 GW at the end of September 24; since 24, the company's energy efficiency performance in buildings was moderate, and the comprehensive resource utilization business was under pressure. The industrial and commercial photovoltaic business led the company's 3Q24 revenue to increase 4% year on year, and the gross margin remained at a good level of 39.3% (-0.6 pp year on year, +3.6 pp month on month). The company benefited from Guangdong Province's distributed photovoltaic action plan. The Q1/Q2/Q3 new reserve installed capacity (through investment decisions) was 169.4/228.1/225.2MW (yoy +22%/54%/1%), respectively. We expect the company's ongoing projects to be put into operation and contribute to performance over 24-25 years, helping the company maintain its leading position in the industry.

Biomass project subsidy impairment was implemented, and the comprehensive use of resources contributed incremental to the company's subsidized biomass projects were included in the compliance list at the end of August. The 3Q24 company confirmed an impairment loss of 0.248 billion yuan on clearly reduced green power subsidy receivables, causing net profit to the mother to change from profit to loss month-on-month; excluding the impact of impairment losses, 3Q24's net profit to mother was +28% YoY and +70% month-on-month, and the company's core business maintained a good growth trend. The company uses the strategy of serving rural revitalization as an entry point, expanding the comprehensive utilization business of decentralized wind power and wind and solar storage resources, and cultivating new profit growth points. At the end of September '24, wind power/agricultural and solar complementary operation scale was no less than 80/346MW.

The profit forecast was adjusted, and the corresponding EPS was 0.08/0.16/0.20 yuan based on the 25-year target valuation, and credit impairment losses were raised; the company's 24-26 net profit forecast to mother was 0.305/0.595/0.773 billion yuan (previous value 0.431/0.548/0.683 billion yuan), and the year-on-year growth rate was -2%/+95%/+30%, corresponding EPS was 0.08/0.16/0.20 yuan, excluding the core after biomass loss EPS is 0.16/0.24/0.29 yuan.

Wind agreed that the average PE value of comparable companies in 25 years was 21x. The company's 24-26 EPS CAGR (35%) was higher than that of comparable companies (+18%), giving the company 36xPE in 25 years (core EPS was 24x), with a target price of 5.76 yuan (previous value 5.48 yuan).

Risk warning: The scale of new PV installations falls short of expectations; the development of new photovoltaic projects falls short of expectations; risk of delays in renewable energy subsidies; and the economic benefits of contract energy management projects during the service period are uncertain.