Incident: The company announced results for the third quarter. In the first three quarters of 2024, revenue was 26.35 billion yuan, down 6.39% year on year; net profit to mother was 5.475 billion yuan, down 10.61% year on year; net profit from non-return to mother was 5.111 billion yuan, down 15.83% year on year.

Looking at a single quarter, Q3 revenue was 7.467 billion yuan, down 9.87% year on year; net profit to mother was 1.648 billion yuan, up 41.58% year on year; net profit after deducting non-return to mother was 1.364 billion yuan, up 16.00% year on year. Combined with electricity data, the third quarter results exceeded our expectations.

The improvement in electricity production in the third quarter is expected to be mainly due to improved wind conditions. If the trend continues, the annual results are expected to recover significantly. The company's Q3 power generation volume was +6.39% year over year, which is a significant improvement over the second quarter (-6.39% year over year). Among them, in 7/8/9, the company's power generation volume was -2.31%/+7.38%/16.94% year on year; among them, wind power, which accounted for more than 70% of power generation, was -6.97%/0.2%/28.64% year on year, which improved significantly compared to the first half of the year, and led to a significant recovery of the company's net profit deducted from the first half of the year (-23.48% YoY in the first half of the year). We expect this is mainly due to improved wind conditions. If the Q4 trend continues, full-year results are expected to recover significantly.

Thermal power assets were gradually divested, and Jiangyin Sulong Thermal Power's equity disposal was completed, and related investment income supported the net profit returned to mother. The company's investment income for the first three quarters reached 0.674 billion yuan, an increase of 6316.47% over the previous year. The company announcement showed that it was mainly due to the completion of the disposal of shares in Jiangyin Sulong Thermal Power Co., Ltd. and the increase in investment income in joint ventures and joint ventures. Judging from financial reports, the Q3 illiquid asset disposal profit and loss reached 0.463 billion yuan, or mainly from the disposal of shares of thermal power companies mentioned above. The disposal of thermal power assets is mainly related to “eliminating the coincidence of thermal power business with the National Energy Group” in the “Supplementary Commitment Letter” issued by the controlling shareholder when Longyuan Electric returned to A-share listing in 2022. According to recent announcements, subsequent companies will further promote their 31.94% shareholding in Nantong Tianshenggang Power Generation Co., Ltd., which is expected to contribute some of the increase in performance.

The company's installed structure is mainly wind power. It has stronger risk resistance at the level of consumption and market-based electricity transactions, and there is a certain guarantee of return on assets. In the future, as the controlling shareholder's new energy assets are injected one after another, the company's leading position is expected to continue to be consolidated. 1) By the end of September 2024, the company held 28.38 GW of installed wind power and 7.97 GW of other renewable energy such as photovoltaics.

Since 2024, wind power will be added by 0.63GW, and photovoltaics will be added by 2.03GW. 2) Currently, the controlling shareholder has no listed new energy assets of about 40 GW (about 20 GW for wind power and photovoltaics respectively), and future asset injections are still worth looking forward to. In the “Supplementary Letter of Commitment” mentioned above, the Group promised to inject its wind power assets into the company. The company recently announced that it plans to acquire a total of 2.03GW of new energy assets under the controlling shareholder National Energy Group, which includes 0.72 GW of photovoltaic installations in addition to 1.3 GW of wind power, and the controlling shareholder is expected to continue to push forward the injection of wind power assets.

The benefits of the green power sector are accumulating. Supported by multiple positive marginal changes such as consumption, electricity prices, and carbon market construction, the company is expected to recover its valuation level as a benchmark in the green power sector. At the same time, considering that potentially injected assets are reasonably priced, there is still room for an overall valuation.

Profit forecast and rating: We predict that the company's net profit for 2024-2026 will be 5.934, 6.853, and 7.31 billion yuan, respectively, and the PE corresponding to the current stock price will be 9/8/7 times, respectively. The company is a benchmark company in the green power sector. It has obvious resource advantages and maintains a “buy” rating.

Risk warning: Fluctuations in wind resources, asset injection progress falling short of expectations, fluctuations in electricity prices, etc.