Hydropower is dragging down performance growth, thermal power profits are improving, and new energy sources are growing steadily. In 2023H1, the company achieved revenue of 9.089 billion yuan (-14.47%), net profit of 901 million yuan (-37.58%), net profit of non-attributable income of 866 million yuan (-31.73%) after deducting net profit of non-attributable income. The decline in the company's revenue was mainly due to a sharp drop in the water transfer level and continued depletion of incoming water from the beginning of the year, a year-on-year decrease in hydropower revenue of 1,141 billion yuan, and a year-on-year decrease of 950 million yuan in coal trade revenue due to a drop in coal prices and a decrease in coal sales volume. The decline in the company's net profit was mainly due to the sharp drop in the water transfer level of the hydropower plant since the beginning of the year and the continued depletion of incoming water. The net profit of the hydropower business decreased by 1,029 million yuan. During the same period, the thermal power business benefited from an increase in power generation and a downward trend in coal prices. The thermal power business saw a year-on-year decrease in fuel costs, a year-on-year increase of 451 million yuan in profits from the thermal power business, and a year-on-year increase of 451 million yuan. The new energy power generation business benefited from an increase in installed capacity, better ice cover than in the same period, an increase of power generation. The new energy power generation business achieved net profit of 371 million yuan, an increase of 42 million yuan over the previous year.
The incoming water situation in the Qingjiang River Basin has improved, and profits from the hydropower business are expected to continue to recover. Since the third quarter, the incoming water situation from the Qingjiang River Basin has improved, and the water level of the company's Shuibuya Reservoir has continued to rise. Currently, the water level and water storage capacity of the reservoir are at a high level. According to data from the National Water and Rain Information Network, as of August 22, 2023, the water level in Shuibuya was 391.88 meters, and the water storage capacity was 3.820 billion cubic meters. It is expected that as the incoming water situation from the Qingjiang River Basin improves, the company's hydropower business profit will continue to grow in the second half of 2023.
Coal prices continue to be low, and there is still room for further improvement in thermal power profits. In the first half of 2023, coal production capacity continued to be released, imports increased dramatically, and coal supply capacity increased steadily. At the same time, due to limited growth in demand for coal in some industries, coal prices continued to be low, which is conducive to the continuous improvement of the company's thermal power profits.
New energy construction continues to advance, and convertible bonds are issued to raise funds to guarantee the implementation of new energy projects. In 2023H1, the company's controllable installed capacity increased by 336,400 kilowatts, including 78,900 kilowatts of wind power and 257,500 kilowatts of photovoltaics; as of 2023H1, the company's total installed capacity of new energy was 3.4596 million kilowatts, including 1,115,800 kilowatts of wind power and 2,348,800 kilowatts of photovoltaics. In July 2023, the company announced that it intends to issue convertible bonds to raise a total of no more than 6 billion yuan. The capital raised will mainly be invested in 8 wind and wind new energy projects, the Luotian Pingtan original pumped storage power plant project, and supplementary working capital. With the completion of future convertible bond issuance, the company's capital strength was further strengthened, and the company's new energy projects were gradually implemented, driving the company's performance to continue to grow.
Risk warning: incoming water falls short of expectations; coal prices rise; electricity prices fall short of expectations; industry policies fall short of expectations.
Investment advice: Lower the profit forecast and maintain the “buy” rating. Since the beginning of the year, the water transfer level for hydropower has dropped drastically and the incoming water has continued to dry up, the profit forecast has been lowered. The net profit for 2023-2025 is estimated to be 21.33/25.26/2,817 billion yuan respectively (2023/2024 was originally 35.79/4.270 billion yuan), EPS is 0.33/0.39/0.43 yuan respectively, and the PE corresponding to the current stock price is 13/11/10x, respectively. It is granted 15-16 times PE in 2023, corresponding to the company's equity value of 32 to 34.1 billion yuan, corresponding to a reasonable price of 491-5.23 yuan/share, and a premium of 12-19% over the current stock price.