Baseload energy, which has both growth and certainty, has broad scope for development in nuclear power demand. In the context of building a new power system, nuclear energy is currently the best baseload energy at the current technical level. In the past ten years, the average number of hours of nuclear power utilization in China has exceeded 7,000 hours per year. Project approval: As of the end of September 2024, the mainland of China had 56 nuclear power units in operation, 30 nuclear power units under construction, and approved 15 units to be built (of which 11 new units were approved in 2024), with a total number of over 100 units. We believe that by 2030, the rate of approval of nuclear power plants is expected to remain above 6 units per year. Electricity: In the whole of 2023, China's nuclear power generation accounted for only 4.9%, while the US and France accounted for 18.6% and 64.8% of nuclear power generation respectively. The China Nuclear Energy Association expects nuclear power to account for 10% of power generation by 2035, and there is plenty of room for growth in the long run. Electricity price:

The feed-in tariffs for nuclear power participating in direct local electricity transactions are divided into originally approved feed-in tariffs (guaranteed internal electricity) and market-based feed-in tariffs (guaranteed external electricity). As electricity reform progresses, the share of market-based electricity in nuclear power will gradually increase, but due to the special nature of nuclear power and the continued increase in the scarcity of baseload energy, we believe that feed-in tariffs are expected to remain at a reasonable level for a long time.

The company's nuclear power capacity under construction and operation continues to grow, and there are sufficient reserves for planned projects. In the first half of 2024, the company controlled the safe and stable operation of 25 nuclear power units, with an installed capacity of 23.75 million kilowatts; all work under construction was carried out in an orderly manner, and progress was under control. According to the company's planned commissioning schedule, the compound growth rate of nuclear motor assembly machine capacity from 2024 to 2030 is about 8.76%; the company's coastal nuclear power plant project is currently being planned, and 37 sites have already entered the plan, and it is expected that 3-5 sites will also be included in the plan.

Due to China's four companies, CNNC, CGN, China Power Investment, and Huaneng, which have licenses to operate nuclear power, the competitive pattern of the industry is stable, and the company is rich in reserve resources. In terms of electricity capacity, the average number of hours used by the company's nuclear power units has increased dramatically since 2019 and has remained stable at a high level. It remained above 7,800 hours in the three years from 2021 to 2023. In the first half of 2024, the company's nuclear power units achieved 89.153 billion kilowatt-hours of power generation and 83.425 billion kilowatt-hours of feed-in electricity, accounting for 42% and 41.73% of the country's total, respectively, with a stable market share.

The installed capacity of new energy sources is growing rapidly, and the ability to obtain resources is high. In 2023, the company added nearly 6 million kilowatts of new energy installed capacity throughout the year. At the end of the year, the cumulative installed capacity of new energy in operation was 18.5159 million kilowatts, and the installed capacity under construction was 9.7275 million kilowatts, an increase of nearly 70% over the previous year. As of the end of September 2024, the company's cumulative installed capacity of new energy in operation and 15.0452 million kilowatts respectively was 24.147 million kilowatts and 15.0452 million kilowatts, which is a further significant increase over the end of 23, and the installed capacity of new energy in operation and under construction has expanded rapidly. The company has set up a fully automatic mass production line for 1200 x 1600 mm3 rigid perovskite photovoltaic modules, and is building the industry's first fully automatic roll-to-roll flexible perovskite photovoltaic module mass production line (continuous preparation length up to 2000 m). Both perovskite technology and industrialization process are at the leading level in the industry.

Investment advice: The growth forecast for the nuclear power industry is clear. Affected by favorable factors such as high utilization hours, reasonable electricity prices, depreciation, and long-term declining financial expenses, the scale and profit of the industry will continue to grow; the competitive pattern in the nuclear power industry is stable. As a leading nuclear power enterprise, the company benefits from industry growth, and has both growth and certainty. Based on the future development logic and performance expectations of the company's various sectors, the company is expected to achieve operating income of 75.955, 85.079, and 89.455 billion yuan in 2024-2026, and achieve net profit of 11.027, 11.936, and 12.677 billion yuan, with year-on-year increases of 3.8%, 8.2%, and 6.2%. The corresponding EPS is 0.58, 0.63, and 0.67 yuan, respectively. The PE multiples corresponding to the current stock price are 17.6X, 16.2X, and 15.3X. First coverage, giving a “buy” rating.

Risk warning: The progress of nuclear power plant construction falls short of expectations. Approvals for additional nuclear power units fell short of expectations. Nuclear power plant safety risks. Risk of price fluctuations of upstream raw materials.