The main body for integrated water and landscape development in the Lancang River Basin. The company is a hydropower development platform under Huaneng Group (the group holds 50.4% of the shares). It is uniformly responsible for the development of hydropower and new energy resources in the main stream of the Lancang River. The cascade hydropower plant group with Xiaowan and Nuozadu as the core has the strongest medium- to long-term regulation capacity in the southern region. As of 24H1, the company held 29.2 million kilowatts of installed capacity. The company announced in October '24 that it plans to participate in 49% of the joint venture project with Huaneng to build Yunnan Yuwang Coal and Electricity (2x1 million kilowatts) and new energy sources, which is expected to further enhance the company's system regulation capabilities. As of 24Q3, the company's cumulative feed-in electricity volume was 85.2 billion degrees, or 3.8% YOY, mainly due to improved incoming water. According to Xinhuanet, as of October 17, hydropower storage in Yunnan Province reached 32.06 billion degrees, +3.8 billion compared to the previous year, which strongly guarantees electricity supply this winter and spring.

The competitive advantages of clean and flexible large hydropower under the market-based mechanism are highlighted. In 2023/24Q1-3, the company achieved revenue of 23.5/19.4 billion yuan, YOY -0.5%/7%; net profit to mother of 7.6/7.2 billion yuan, YOY 6%/8%; estimated 2023/24Q1-3 feed-in tariffs were 0.221/0.228 yuan/kilowatt, and YOY 4%/3%, respectively. Yunnan is one of the provinces with the highest share of electricity in China's market (the share of electricity in the provincial market reached 69% in 2023); electricity reform practices such as electricity sales side reforms and spot stocks in the southern region are progressing steadily. The company designed two packages for electricity sales in 2025, hydropower+new energy and hydropower, and provided customers with services such as monthly warehouse adjustment and recent warehouse adjustment. We believe that the company's advantages such as complete power supply types, good power structure, excellent time-sharing curve, and strong adjustment ability will help the company optimize electricity prices in market competition, and we are optimistic that the company's comprehensive electricity sales price will rise steadily.

Hydropower incremental: “14th Five-Year Plan” TB+ hard beam package, “15th Five-Year Plan” upper reaches of the Lancang River. The company acquired Huaneng Sichuan Company in September '23, including the 2.65 million kilowatts of installed capacity. The hard-girder power station it has built (1.12 million kilowatts, an average annual power generation capacity of 5.142 billion degrees, estimated net profit contribution of about 0.4 billion yuan) achieved its water storage target in December '24 and entered the sprint phase of commissioning power generation. Furthermore, the TB power station (1.4 million kilowatts) in the upper reaches of the Lancang River has been gradually put into operation since June 24. Its average power generation capacity over the years is 6.23 billion degrees, and the estimated net profit contribution is about 0.49 billion yuan. Since then, the company's new installations have mainly come from the Lancang River Clean Energy Base (10 million kilowatt photovoltaic+10 million kilowatt hydropower). According to the “Renewable Energy Green Electricity Certificate Issuance and Trading Rules”, feed-in electricity for fully marketable conventional hydropower projects that are newly put into operation after January 1, 2023 (inclusive) will be issued a tradable green certificate; we believe that the company's new hydropower supply is expected to obtain green certificate revenue.

Profit forecasting and valuation. According to the company's 24-26 shareholder return plan, the cash dividend is no less than 50% of the current distributable profit. We estimate that the company's net profit for 24-26 will be 8.52, 9.53, and 10.11 billion yuan, respectively, and the corresponding EPS will be 0.47, 0.53, and 0.56 yuan, respectively. Referring to comparable company valuations, the PE valuation method gave the company 21-23 times PE in 2025, corresponding to a reasonable value range of 11.13-12.19 yuan; the PB valuation method gave the company 2.6-3.0 times PB in 2025, corresponding to a reasonable value range of 11.02-12.72 yuan.

Considering the long-term growth brought about by new installed equipment construction and electricity market-based reforms, the company was given a reasonable value range of 11.13-12.19 yuan based on the above valuation method, giving it a “superior to the market” rating.

Risk warning. Incoming water falls short of expectations, electricity consumption growth falls short of expectations, environmental risks, and electricity price risks.