Key points of investment:

Zhejiang Province is a power leader, and the performance can be expected to improve in the future: the controlling shareholder is strong. The company is the only integrated platform for the Group's thermal power business, providing strong backing for the company's development. The company is mainly engaged in electricity sales, steam sales and comprehensive energy services. It is deeply involved in thermal power and has also entered the high-end new energy equipment industry, transforming and upgrading to the dual main business of “thermal power generation+new energy manufacturing”. The company is the local power generation enterprise with the largest installed capacity in the country, mainly thermal power generation. In 2023, as the price of thermal coal gradually declined, the company turned a loss into a profit. The performance hit a new high in nearly five years. Net profit from 1Q-3Q24 increased 12.37% year on year. It is expected that the company's net profit to mother will continue to grow in 2024, and the performance can be expected to improve in the future. The company's historical dividends have continued to be stable and impressive, and improving performance has laid a solid dividend foundation. It is expected that it will continue to pay a high percentage of dividends in the future.

The profit of thermal power continues to recover, and the momentum of value reshaping is improving: the company is rooted in Zhejiang and is the largest thermal power company with built-in energy in the province. In 2023, the company managed about 30.88 GW of coal and electricity installations and 4.03 GW of gas and electricity installations; after deducting the commissioned management of Wenzhou Truly Power Generation, Huaizhe Fengdian Phase I, and Wenzhou Gas Engine, it held 28.96 GW of coal and electricity installations and 3.68 GW of gas and electricity installations. Under equity, the company installed 28.84 GW of coal power and 4.28 GW of gas and electricity. 5M-7M2024, Zhenhai Union, and Liuhengshan Unit 3 were put into production one after another. It is expected that the Liuhengshan Unit 4 and the Zhejiang Zhenhai gas turbine relocation are expected to be put into operation within this year.

In 2025-2026, a total of four million units will be put into operation one after another, and future performance increases will gradually be released.

Zhejiang's electricity supply and demand are tight, ensuring that the company's fleet utilization hours are at a high level. High coal prices fell back, electricity prices remained high, and the company's profits from holding coal and electricity improved. In addition, capacity electricity prices began to be implemented in '24, and the cyclical attributes of thermal power were weakened, and utility properties were strengthened, establishing sustainable and stable profit expectations for coal power.

Participating in nuclear power construction to support profit, laying out the dual main business of photovoltaic transformation: China's share of nuclear power generation is below the world average of 10%, and it is expected that nuclear power will account for about 10% of power generation in 2035, double that of 2023. During the “14th Five-Year Plan” period, China is expected to maintain the pace of approval and commencement of construction of 6-10 nuclear power units per year, and normalization of nuclear power approval will open up room for long-term growth. The company has a deep layout in the field of nuclear power, and the return on investment is rich. In the future, with the commissioning of Sanmen Nuclear Power, CNNC's Liaoning, and CGN Cangnan nuclear power projects, the company's investment income from participating in the nuclear power sector is expected to increase further. In addition, the company entered photovoltaics and entered the new energy high-end equipment industry by investing in shares, and the company's “dual main business” development pattern was initially formed. The company will rely on the coal-power+new energy resource supporting development policy and actively seek supporting new energy development projects. Continue to deepen industrial collaboration with China Lai Co., Ltd. and make every effort to promote large-scale development of distributed photovoltaics.

Profit forecast and investment advice: Benefiting from the commissioning of new installed capacity and the fall in high coal prices, the company's future performance growth can be expected. We forecast the company's revenue for 24-26 to be 941.15, 970.79, and 10.707 billion yuan, respectively, and net profit to mother of 77.69 billion yuan, 84.22, and 9.085 billion yuan, respectively, corresponding PE 9.4/8.6/8.0 times, respectively. Covered for the first time, giving a “holding” rating.

Risk warning: the risk of falling demand for electricity due to the macroeconomic downturn; the risk of high costs due to high fuel prices; the risk that competition in the electricity market will reduce feed-in tariffs; the risk that the business development of China Lai shares falls short of expectations; the public data used in the research report may be delayed or not updated in a timely manner.