Q2 Performance increased month-on-month, and the coal power sector achieved profit. The company released its 2023 mid-year report, achieving revenue of 28.3 billion yuan (+25.3% year-on-year); net profit of 860 million yuan (loss of 1.37 billion yuan for the same period last year, 0.9 million yuan and 770 million yuan for Q1 and Q2, respectively), of which coal power profit was 207 million yuan, gas and electricity profit of 254 million yuan, hydropower loss of 104 million yuan, and new energy profit of 301 million yuan. In the first half of the year, 53.5 billion kilowatt-hours of feed-in electricity were completed (+15.4% compared to the same period), of which 42.1 billion kilowatt-hours were coal-fired. Based on 69% equity installed capacity, the profit of coal-fired electricity was 7 centimeters. 2023H1's net operating cash flow rebounded to 2,720 billion yuan, and the balance ratio rose slightly to 79.7% (under construction+approval) /thermal power installations in operation reached 0.62 times. We are optimistic about a triple increase in profits on the thermal power side.

In terms of electricity prices, the medium- to long-term electricity prices in Guangdong Province remained high at 545 yuan/megawatt-hour from January to August (power trading center); in terms of cost, the current Qinhuangdao Q5500 and Indonesia Q4200 latest coal prices have dropped 48% and 33% from last year's high (Baichuan Yingfu), and Changxie Coal's compliance is expected to continue to rise. It is optimistic that coal usage costs will continue to drop in the third quarter. According to the statistics announced, the company is currently constructing 7.23 GW of thermal power (5.23 GW of gas and electricity, 2 GW of coal power) and 9.38 GW of approved thermal power installations (3.38 GW of gas and electricity, 6 GW of coal power). They are optimistic that the thermal power side will maintain the triple increase in installed/electricity price/profit margin.

The installation capacity under construction is 4.4 GW. It is rich in resources and is expected to be installed at an accelerated pace. According to the company's development plan, the 14th Five-Year Plan strives to add 14 GW of scenery installed; 2023H1 added 67.5 MW of photovoltaic installed capacity and 4.42 GW of landscape installation capacity under construction in the first half of the year. 11.80 GW of landscape projects have been registered and approved, and there are plenty of resources on hand. We expect the installation of green power to accelerate in the second half of the year, and that the company has multiple peak shaving capabilities to effectively guarantee consumption.

Profit forecasts and investment recommendations. It is estimated that the company's net profit from 2023 to 2025 will be 2,598, 32.64, and 3,992 billion yuan respectively, and the corresponding PE at the latest closing price will be 12.86, 10.23, and 8.36 times, respectively. The company has remarkable advantages in location resources and integrated wind and fire storage, and made every effort to develop new energy during the 14th Five-Year Plan. Referring to the peer valuation level, the company was given 13 times the PE valuation in 2024, corresponding to a reasonable value of 8.08 yuan/share, and maintained a “buy” rating.

Risk warning. Coal prices continue to rise; construction and utilization hours for new energy projects fall short of expectations, etc.