The year-on-year decline in electricity prices dragged down profits in the first quarter, but it was still within the expected range. The company's profit in the first quarter fell 6% year on year. We think the reasons include: 1) the company's wind/solar power generation increased 0.1%/60.9% year on year in the first quarter, and it is estimated that the wind power limit rate should rise year on year; 2) due to the year-on-year increase in the share of photovoltaic power generation and more affordable projects, the company's average feed-in price was lowered (down about 3% year over year); and 3) after the company added 1.2 gigawatts of installed capacity year on year last year, depreciation for the period increased 5.4% year on year. As a result, operating profit margin fell 2 percentage points to 51% year over year, and operating profit decreased 3.6% year over year. Although earnings in the first quarter were still declining, the magnitude of the decline in electricity prices is still within our expectations.

The level of utilization hours in the 2nd to 3rd quarter was critical. Currently, we maintain the company's profit forecast. In 2024, the feed-in electricity price for wind/light fell by 3%/2% year on year, and overall power generation increased by 3.2% year on year. This will partly depend on whether wind power usage hours can recover year on year in the 2nd to 3rd quarter, as wind power usage time last year was lower than in previous years. Management still expects more than 2 gigawatts of installed capacity to be added in 2024. Based on the company's ongoing project of 1.8 gigawatts, we believe it is still expected to be completed. At the same time, management said it is still possible to acquire some of the parent company's approximately 10 gigawatt renewable energy installations, but there is currently no firm timeline.

We currently conservatively expect the company to add 1.8/2.1 GW of self-built wind and light projects by the end of 2024/25.

Profit is expected to increase slightly in 2024, and there is limited room to increase the dividend ratio. We estimate that the company's new installed capacity will still focus on completing the grid connection in the second half of the year. We expect the company's profit per share to increase 4.6% year-on-year in 2024, with a compound profit growth of 7.7% in 2023-26. The company's dividend ratio has increased by 13 percentage points to 23% in 2023. We believe that during the period when the company actively fulfills the 14th Five-Year Plan installation target, the increase in the dividend ratio is quite limited. We continue to base our valuation on the average annual earnings ratio over the past 5 years (5.7 times), and the target price remains at HK$2.0. Maintain a buy rating.