Guiguan Electric Power released its three-quarter report: 3Q24 achieved revenue of 2.524 billion yuan (yoy +29.94%, qoq -6.53%) and net profit of 0.727 billion yuan (yoy +224.74%, qoq -27.87%). 1-9M24 achieved revenue of 7.354 billion yuan (yoy +20.61%), net profit of 2.164 billion yuan (yoy +90.34%), deducting non-net profit of 2.153 billion yuan (yoy +87.30%). The net profit for 3Q24 is at the upper limit of the 0.45-0.768 billion yuan range we expected. It was mainly due to the large year-on-year abundance of incoming water from the Hongshui River Basin, and the company's hydropower generation capacity was +62.46% compared to the same period last year. Although the company's net profit from 2024-2026 was lowered by 16%/15%/14% due to hydropower restoration or falling short of expectations, the company's cash flow is still abundant, and the company's FCFE valuation can reach 64 billion yuan under a 7% discount rate in 2024, a “buy.”

Water restoration from a low base. The company's 3Q24 hydropower generation capacity was +62.46% compared to the same period in 2023. The incoming water in the basin where the company's hydropower station is located was severely depleted. 1-9M24, the company's hydropower generation capacity under incoming water restoration was +38.41% to 23.092 billion kilowatt-hours, mainly the 3Q24 hydropower generation capacity was +62.46% to 8.695 billion kilowatt-hours compared to the same period last year. In 3Q24, the company's thermal power generation capacity was -49.88% to 0.645 billion kilowatt-hours. The main reason was that Guangxi's hydropower output increased dramatically, squeezing the space for thermal power generation.

The company's wind power operation is steady, with 3Q24 power generation +18.18% year over year, and 1-9M24 power generation growth rate 15.7% year over year. Thanks to new installations connected to the grid, 3Q24's photovoltaic power generation capacity was +136.44% year over year, and the 1-9M24 growth rate was as high as 115.45% year over year.

We promise a 70% dividend ratio in 2024, and continue to be optimistic about the company's cash flow value. The “2024 “Improve Quality, Efficiency, and Value Return” Action Plan issued by the company on April 25 clearly proposed the company's three-year average dividend payment rate of 68.25% from 2020 to 2022. In order to increase investors' sense of attainment, the 2024 dividend payment rate should not be less than 70%. The company's main profit and cash flow are contributed by hydropower. Cash flow fluctuations are significantly smaller than profit fluctuations. We estimate that the company's FCFE valuation can reach 64 billion yuan at a 7% discount rate.

Target price is 7.67 yuan, maintaining a “buy” rating

Considering the sharp decline in the year-on-year growth rate of incoming water since September, we lowered the company's hydropower generation forecast and lowered the 2024-2026 net profit forecast to 2.465/2.63/2.821 billion yuan (previous value: 2.918/3.079/3.287 billion yuan), corresponding EPS was 0.31/0.33/0.36 yuan. Referring to comparable company 2025E PE Wind's consensus forecast of 16.5x. We continue to be optimistic about the company's cash flow value, and consider the company's ROE and The dividend ratio is higher than most comparable companies. The company was given 23x 2025E PE, corresponding to a target price of 7.67 yuan (previous value: 9.62 yuan), maintaining a “buy” rating.

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