Incident: On April 26, the company released its report for the first quarter of 2024. During the reporting period, it achieved operating income of 30.952 billion yuan, a year-on-year decrease of 3.21%; net profit to mother was 1,862 billion yuan, up 64.21% year on year; net profit after deducting non-return to mother was 1,621 billion yuan, an increase of 66.90% year on year.
Volume parity fell, and revenue was under pressure: 1Q24 completed 56.164 billion kilowatt-hours of power generation, down 0.2% year on year, including 55.152 billion kilowatt-hours of thermal power generation, down 0.5% year on year; the decline in the company's electricity volume is due to the decline in thermal power output in the important Hubei region due to hydropower squeezing, reducing electricity generation by 2.09 billion kilowatt-hours year in a single quarter, a decrease of 24.1%. In addition, the Shandong Laizhou power plant, which contributed greatly to the company's profits, reduced its revenue by 1.27 billion kilowatt-hours in a single quarter, a decrease of 27.0%. Therefore, although new units were put into operation, the core Shandong region achieved 2.210 billion kilowatt-hours of power generation in a single quarter, which was basically the same; weak spot electricity prices in Shandong and policy fluctuations in coal-fired electricity prices in Hunan since the beginning of the year were multiple factors affecting the company's average feed-in tariff. The Q1 Company's comprehensive average feed-in tariff fell 2.16 cents/kilowatt-hour year on year to 0.5093 yuan/kilowatt-hour, a decrease of 4.1%.
Q1 The company's hydropower generation capacity was 1,011 million kilowatt-hours, up 24.8% year on year. Overall, the company's electricity volume was stable in a single quarter, but the year-on-year decline in electricity prices affected revenue performance.
Coal prices have declined, and the trend of performance recovery has not changed: the average price of coal liquidation at the end of the 2024Q1 Q5500 Qinhuangdao Port was about 902 yuan/ton, down 20.1% year on year; benefiting from improved fuel costs, the overall gross margin of the Q1 company increased 4.16 percentage points to 8.40% year on year, and the net sales margin was revised to 7.31%. Since mid-March, port coal prices have experienced a rapid decline. The average price in April (April 1 to April 25) is about 814 yuan/ton. If we assume that the unit price in May remains flat with the April average, and if we measure Q2 fuel costs using the 3, 4, and 5 three-month coal price scales, we estimate that the average coal liquidation price at the end of the Q5500 in Qinhuangdao Port is about 833 yuan/ton. The year-on-year decrease of 191 yuan/ton, a decrease of 18.6%. The decline in port electricity and coal prices is clearly compounded by the increase in the coverage rate of the Association. The trend is not changing.
The investment income is expected to stabilize: the company's investment income is expected to stabilize: the company's investment income mainly comes from participating coal mining companies and Huadian Xinneng. At the 2023 performance exchange meeting, the company stated that 4 coal mines in the Shanghai Miao area have resumed work, and their investment income is expected to gradually improve according to the production schedule within the year; considering the year-on-year decline in Q1 landscape utilization hours and fluctuations in new energy electricity prices or offsetting the increase brought about by new energy installations to a certain extent, Q1 achieved a net investment income of 1,148 million yuan, a year-on-year decrease of 35 million yuan, but the decline narrowed.
Investment advice: Considering recent coal price trends, the company's thermal power sector performance is expected to continue to improve in '24. The risk of participating in coal mines has been fully released, and investment returns are expected to stabilize. Maintaining the company's profit forecast, after deducting interest on perpetual bonds, EPS is expected to be 0.49/0.61/0.68 yuan respectively for 24/25/26, corresponding to the closing price of A-shares PE 14.0/11.1/10.1 times on April 26, and the closing price PE for H shares will be 7.9/6.4/5.7 times, respectively. Referring to the company's historical valuation level, the company was given 15.0/10 times PE for 2024 A/H shares, with a target price of 7.35 yuan (RMB) /5.33 yuan (HKD), maintaining a “careful recommendation” rating.
Risk warning: 1) Increased fuel prices increase operating costs; 2) competition in the electricity market reduces feed-in tariffs; 3) supply restructuring suppresses unit output.