Incident: The company disclosed its report for the third quarter of 2024. 2024Q3 achieved operating income of 3.82 billion yuan, a year-on-year decrease of 4.13%, and realized net profit to mother of 0.585 billion yuan, a year-on-year decrease of 16.6%, slightly lower than our expectations.

The decline in electricity production has offset the benefits brought about by the decline in coal-burning costs, and the decline in investment returns is the main source of the decline in profits.

In the first three quarters of 2024, the company achieved 17.62 billion kilowatt-hours of power generation, up 0.37% year on year, with wind power generation up 0.09% year on year and thermal power generation up 0.4% year on year; Q3 company achieved 6.464 billion kilowatt-hour power generation, down 3.51% year on year. Among them, wind power generation decreased 1.34% year on year, cogeneration unit power generation increased 0.08% year on year, gas and electricity generation capacity increased 9.66% year on year, and the power generation of coal-fired units fell 20.2% year on year. It is estimated that mainly due to unit inspection . At the same time, Q3's operating costs decreased by 0.18 billion yuan year on year. It is expected that the company's Q3 gross margin will increase slightly, mainly due to the increase in the coal long-term cooperation ratio and the decline in coal combustion costs. In addition, Q3's net investment income decreased by 0.1 billion yuan year-on-year, mainly due to the decline in profits from participating in thermal power companies.

An additional 0.66 million kilowatts were approved, and the shares in Haifeng were put into production one after another, and it is expected to gradually contribute to profits. The company's participating company, Strait Power (35% shareholding), has an ocean wind index of 0.9 million kilowatts, of which 0.5 million kilowatts have already been put into operation, which is expected to contribute part of the profit this year. Another 0.4 million kilowatt wind power project has already been approved. These projects are all affordable projects. Currently, the cost level of Seabreeze is low, and the yield level is expected to be high after production. In addition, the company approved a new 0.66 million kilowatt seabreeze project (Changle Offshore Zone J) project this year. The project has an equivalent full load time of 4564 hours, a capacity coefficient of 0.521, and a good level of wind resources. It is expected to be put into operation by the end of 2026 according to the 2-year construction period. The yield level of the project is expected to be quite impressive after commissioning.

The Quanhui Thermal Power Phase II project was approved, and the installed thermal power plant under construction reached 2.62 million kilowatts. In May of this year, the 2*0.66 million kilowatt of the company's Quanhui thermal power project was approved. Recently, Quanhui Thermal Power Phase II 2*0.65 million kilowatts was approved. After summing up, the company approved more than 2.6 GW of thermal power installed. The Quanhui projects are all cogeneration projects, supporting the heat load requirements of the petrochemical industrial zone. Referring to the current profit performance of Hongshan Thermoelectric, it is expected that the profit level of the Quanhui project will be high.

The Fujian Sea Breeze approval is expected to be accelerated, and it is estimated that the electricity price mechanism is more reasonable to guarantee the return on the project. During the “14th Five-Year Plan” period, Fujian Province plans to develop an additional offshore wind power scale of about 10.3 million kilowatts under provincial administration, in an effort to promote the commencement of 4.8 million kilowatts of deep-sea wind power. In the early stages of the “14th Five-Year Plan”, Fujian Province only approved about 6 GW of offshore wind power projects. It is expected that Fujian's seabreeze approval is expected to accelerate this year and next. As a provincial power leader, the company has a significant advantage in obtaining projects, and is expected to usher in a new round of growth. From the perspective of yield, in the past, the bid price for the Fujian Sea Wind project was the main one, and the winning electricity price dropped to around 0.2 yuan/kilowatt-hour, causing the profitability of the Seabreeze project to be lower. It is expected that in the future, the approval method for Fujian Province will be more reasonable. Against the backdrop of falling costs and the number one wind resource in the country, the yield of new projects in Fujian Province is expected to increase dramatically in the future. Currently, the winning bid price of the offshore fan (including the tower cylinder) has dropped to 3,680 yuan/kW, which is almost lower than the highest price in 2021. If the Internet can be accessed at an affordable price, the operating profit of the sea breeze project is high.

Profit forecast and rating: We maintain the company's 2024-2026 net profit forecast of 2.988, 3.145, and 3.47 billion yuan, respectively, with year-on-year growth rates of 13.9%, 5.3%, and 10.3% respectively. The PE corresponding to the current stock price is 8, 8, and 7 times, respectively. The current valuation level is still low, and we continue to maintain a “buy” rating.

Risk warning. The approval of the Seabreeze project fell short of expectations, and there is a risk that coal and electricity prices will fall