Description of the event

The company released its three-quarter report for 2024: in the third quarter of 2024, the company achieved operating income of 7.537 billion yuan, a year-on-year decrease of 1.27%; realized net profit to mother of 3.056 billion yuan, a decrease of 7.37% over the previous year.

Incident comments

Installed capacity expansion combined with incoming water restoration, and performance grew steadily in the first three quarters. In the first three quarters of 2024, under the influence of incoming water from the Wunonglong, Xiaowan, and Nuozadu sections of the Lancang River basin, were 5%, 3.6%, and 8.5%, respectively. Combined with the company's Toba power station, the company completed 83.056 billion kilowatt-hours of electricity generation in the first three quarters, an increase of 1.69% over the previous year. If the power generation capacity of the newly put Toba power plant is excluded, the electricity generation capacity of the original hydropower plant was 81.427 billion kilowatt-hours, a decrease of 0.31% year on year. Against the backdrop of abundant incoming water, the decline in electricity capacity of existing hydropower stations may be affected by the company's active energy storage. For example, the power generation of Nuozhadu Power Station in the first three quarters fell 10.17% year on year, and the power generation capacity of the downstream Jinghong Power Station also fell 11.56% year on year. The power generation capacity of Nuozhadu and Jinghong power stations in the first three quarters accounted for 21.96% of the company's hydropower generation, so the short-term impact of energy storage on electricity volume cannot be ignored. In terms of new energy, the company's wind power generation reached 0.319 billion kilowatt-hours in the first three quarters, an increase of 6.33% over the previous year; under the influence of new installations, the company's photovoltaics completed 2.652 billion kilowatt-hours, an increase of 201.02% over the previous year. Overall, the company achieved 86.026 billion kilowatt-hours of power generation in the first three quarters, an increase of 3.82% over the previous year. Since electricity prices for new hydropower and new energy units are expected to be relatively high, and electricity prices are expected to be supported as electricity supply and demand continue to tighten in Yunnan Province, the company achieved revenue of 19.418 billion yuan in the first three quarters, an increase of 7.05% year on year; achieved net profit of 7.226 billion yuan to mother, an increase of 7.78% year on year.

The volume of incoming water weakened in the third quarter, and the short-term pressure on single-quarter results was under pressure. In the third quarter, incoming water from Yunnan Province changed from being plentiful in the first half of the year to some withering. As a result, the company's hydropower generation capacity was 38.468 billion kilowatt-hours in the third quarter, a year-on-year decrease of 5.63%.

However, the amount of wind and power has continued to grow rapidly. As a result, the company completed 39.331 billion kilowatt-hours of power generation in the third quarter, a year-on-year decrease of 4.59%. The company's revenue for the third quarter was 7.537 billion yuan, down 1.27% year on year. The narrow decline in the company's revenue was mainly due to higher electricity prices for newly put into operation and the impact of a recovery in market-based electricity prices. The company's gross margin for the third quarter was 61.08%, down 3.43 percentage points from the previous year due to increased costs due to the commissioning of new power plants. The company achieved net profit of 3.056 billion yuan in the third quarter, a year-on-year decrease of 7.37%.

Short-term pressure cannot be extrapolated linearly, and the full-year performance outlook is positive. As we have always emphasized, the company's power plant's water storage will not be wasted. Abundant energy storage will have a positive impact on the amount of hydropower in the fourth quarter and beyond, and electricity prices will be higher during the dry water period in the fourth quarter, which will double catalyze the company's hydropower revenue. Furthermore, on June 15, the first unit 1 (0.35 million kW) of the company's Toba Power Station officially entered commercial operation, and it is expected that the total installed capacity of 1.4 million kilowatts will be put into operation within the year. Therefore, under the influence of abundant water storage and the commissioning of the installed capacity, the company's annual performance outlook is still positive. Furthermore, according to the company's announcement, the company plans to establish a joint venture with Huaneng International to develop the Yuwang Phase II integrated coal power and new energy project. The project includes 2 million kilowatts of coal power and supports certain new energy resources. The company will invest 1.45 billion yuan in cash and hold 49% of the shares. The construction of the integrated project is expected to guarantee the company's performance growth during the “15th Five-Year Plan” period.

Investment advice: According to the latest financial data, we expect the company's corresponding EPS in 2024-2026 to be 0.49 yuan, 0.55 yuan and 0.61 yuan, respectively, and the corresponding PE will be 20.34 times, 18.23 times, and 16.39 times, respectively. Maintain a “buy” rating.

Risk warning

1. The risk of market electricity price fluctuations;

2. The risk of incoming water falling short of expectations.