Huaneng International released its three-quarter report (all data except profit forecasts are Chinese accounting standards): 3Q24 achieved revenue of 65.59 billion yuan (yoy +0.46%, qoq +22.74%) and net profit of 2.959 billion yuan (yoy -52.69%, qoq +3.55%). 1-9M24 achieved revenue of 184.396 billion yuan (yoy -3.62%), net profit of 10.413 billion yuan (yoy -17.12%), deducting non-net profit of 10.041 billion yuan (yoy +6.87%).

The company's net profit for 3Q24 was lower than our expected 4.2-4.888 billion yuan, mainly due to asset impairment losses of 1.193 billion yuan (generally calculated in Q4). In 3Q24, the company's operations improved. After asset depreciation, the total profit from coal power generation was 3.1 points (yoy+0.4 points), and the total profit from wind power was 0.147 yuan (yoy+4.2 points). Optimistic about the company's thermal power profit improvement and wind power development, and maintain “purchases”.

The total profit from coal power generation was +0.4 points in 3Q24 after asset depreciation. The company's coal/gas feed-in electricity volume was -0.3%/+8.7% to 107.704/8.803 billion kilowatt-hours. The year-on-year growth rate improved significantly from -9.7%/-7.3% in 2Q24, mainly due to the sharp drop in incoming water and electricity after August compared to June and July, and the squeezing effect on thermal power generation was weakened. In 3Q24, the company achieved a total profit of 2.588 billion yuan. If the assets of the Jining power plant were reduced to 0.727 billion yuan, it was 3.315 billion yuan. The total corresponding electricity profit was 2.4/3.1 points, -0.2/+0.4 points year-on-year, a significant increase from 1.5 points in 2Q24 (due to an increase in electricity volume), and a decrease of 0.7 points/flat from 3.1 points in 1Q24 (due to an increase in electricity consumption and a decrease in coal consumption). The company also accrued asset impairment losses of 0.409/0.012 billion yuan for Nong'an biomass power plant/other individual items in 3Q24.

In 3Q24, the year-on-year growth rate of wind power feed-in capacity was restored, and the total electricity profit was +4.2 points 1-9M24 year on year. The company added 1467.45/3753.13 MW of grid-connected wind power/photovoltaic installed capacity, achieving 52% of the annual grid-connected target. In 3Q24, the company's wind power feed-in capacity was significantly +25.7% to 7.951 billion kilowatt-hours, and the year-on-year electricity growth rate was significantly restored by 1.8% compared to 2Q24; total wind power profit was +75.7% to 1.17 billion yuan year-on-year. We estimate that the company's total 3Q24 wind power profit was 0.147 yuan, +4.2 points year over year, but since the third quarter was a light wind season, the number of hours used was generally the lowest in the four quarters of the year, and the total electricity profit was less than 0.241/0.183 yuan for 1Q24/2Q24. 3Q24's total PV power profit was -3.9 points year-on-year to 0.208 yuan due to a year-on-year decline in feed-in tariffs.

Target price of HK$5.49, maintaining “Buy” rating

Considering the downward trend in coal prices since this year, adjust expectations for the company's coal prices and coal, electricity and electricity prices, and adjust the company's net profit to mother for 24-26 to 10.4/12.7/13.1 billion yuan (previous value: 11.7/12.3/13.1 billion yuan). The company's BPS is expected to be 4.80 yuan after deducting perpetual bonds in 2025. It is optimistic that the company's long-term development of the new energy business and the continuous recovery of thermal power performance will give the company 1.05x 2025E PB, which is about 1 standard deviation higher than its historical average (0.72x). The target price is HK$5.49 (previous value: HK$5.67), a “buy”.

Risk warning: coal prices are higher than expected; market-based electricity prices/coal and electricity capacity prices/hours of use/new scenery projects fall short of expectations; risk of asset impairment is calculated.