The company publishes its 2020 annual report. In 2020, the revenue reached 20.097 billion yuan, an increase of 8.94% over the same period last year, and the net profit returned to the mother was 1.396 billion yuan, an increase of 1.80% over the same period last year, which is in line with our expectations.

The company releases its quarterly report for 2021. 2021Q1 achieved revenue of 5.604 billion, an increase of 11.76% over the same period last year, and a net profit of 67 million yuan, a decrease of 85.95% over the same period last year, in line with our expectations.

Investment cases:

In 2020, the performance of the holding unit improved, the performance of the participating unit fell, and the overall profit of the company was flat. Affected by the epidemic in the first half of 2020, coal prices in Mengxi region fell sharply, coupled with the continuous influx of high energy-consuming industries led to the tightening of power supply and demand in Mengxi, and the company achieved overall performance repair of its holding units in 2020. But in terms of subdivision, the performance of the delivery unit varies, with Daihai Power Generation benefiting from the end of maintenance, with a net profit of 186 million yuan for the whole year (85 million yuan for the same period in 2019); Xilin Power Generation is affected by the rise in coal prices along the Mengdong UHV line, achieving a net profit of only 150 million yuan for the whole year (260 million yuan for the same period in 2019). In terms of shareholding units, affected by the epidemic and coal prices, the profits of Datang Tuoketuo No. 2 Power Station and Huaneng Beijing Thermal Power Plant, which the company shares, have all declined, resulting in an 11.05% year-on-year reduction in the company's annual investment income, with an absolute value of about 150 million yuan. The overall performance of the holding unit is offset.

The rise in 2021Q1 coal prices is a drag on performance. Affected by anti-corruption, EIA and other factors, coal prices in Inner Mongolia have risen sharply since the second half of 2020 and continued until the beginning of 2021. The company's 2020Q4 net profit in a single quarter is 1.17 yuan, which is only about 1 2020Q3 per quarter profit. The company's 2021Q1 homing net profit continued to decline 43.18% from the previous month, but the investment income still increased by 75.51% compared with the 2020Q4 (down only 8.45% from the same period last year), and the projected profit decline mainly came from the holding unit.

Equity incentives hit the ground and vigorously cultivate new profit growth points of the company. The company will complete the first batch of equity incentive plans in 2020, establish a more flexible incentive mechanism, strive to break through the restrictions of traditional thermal power business, and accelerate the transformation under the background of carbon neutralization. In terms of traditional business development, most of the Mengxi holding units of the company are newly put into production cogeneration units, most of them are located around the city, and the downstream thermal demand is strong. By the end of 2020, the heating area of the company has reached 160 million square meters, an increase of 33.75 million cubic meters compared with the same period last year; the acquisition of 90% stake in Henan Tongyuan Heat and Power laid the foundation for the company to expand its comprehensive energy business in Huizhou. In the field of power distribution, the company completed the subscription of 3% equity in Ningxia and Hebei Electric Power Trading Center in 2020, strengthening the company's say in the electricity sales market. In the field of emerging energy, the company plans to actively layout "source network charge hydrogen storage" in Beijing, Tianjin and Hebei, Baotou, Inner Mongolia, Ordos and other regions to cut into the emerging energy market and cultivate new energy growth points.

A substantial increase in the dividend commitment, the minimum dividend ratio is attractive. The company released the shareholder return plan for the next three years (2020-2022), making it clear that the average annual cash dividend is not less than 70% of the profits available for distribution in that year and the dividend per share is not less than 0.12 yuan (including tax). According to the current stock price of 3 yuan per share and our forecast of 2021 net profit of 1.41 billion yuan, the dividend ratio of 70% corresponds to a dividend yield of about 4.9% and 0.12 yuan per share, corresponding to a minimum dividend yield of 4%, which is attractive to a certain extent.

Profit forecast and rating: with reference to the annual report of 2021, the quarterly report of 2021 and the progress of the company's production of units under construction, we downgrade the company's 2021 net profit to 1.413 billion yuan (before the adjustment is 1.957 billion yuan), and add 15.04 yuan and 1.625 billion yuan to the net profit forecast for 2022-2023, corresponding to 14, 13 and 13 times of the company's current stock price, taking into account that the company's current stock price has digested the expected downgrade and maintains the "overweight" rating.