Incident: The company issued an announcement on the completion of power generation for the first half year of 2024. The total power generation capacity of the six cascade power plants in the company was about 120.618 billion kilowatt-hours, an increase of 16.86% over the same period last year. Among them, the total power generation capacity of the six cascade power plants belonging to 2Q24 Company was about 67.871 billion kilowatt-hours, an increase of 42.54% over the same period last year.
The incoming water situation has been greatly improved, supporting high electricity generation. After experiencing the dry water period of 2H22-1H23, China's incoming water gradually became abundant in the second half of 2H23. From January to May of this year, the number of hours used for hydropower in Hubei Province, where the Three Gorges are located, reached 1,333 hours, an increase of 395 hours over the previous year. Benefiting from significant improvements in incoming water conditions, in the first half of 2024, the total amount of incoming water from the Wudongde Reservoir and the Three Gorges Reservoir in the upper reaches of the Yangtze River was 36.66 and 147.941 billion cubic meters, respectively, with a year-on-year increase of 11.40% and 19.67%. 1H24 Three Gorges, Gezhouba, Xiluodu, Xiangjiaba, Wudongde, and Baihetan increased by 25.36%, 16.98%, 21.58%, 10.91%, 18.35%, and 3.43%, respectively. The company's water storage mission was successfully completed at the end of 2023. The Jinsha River cascade reservoir reached 33.8 billion kilowatt-hours of energy storage, and the potential for joint transfer of the six reservoirs can be further unleashed.
The year-on-year increase in power generation is expected to support a rapid increase in the company's performance. Compared with 1H23's power generation capacity of 103.214 billion kilowatt-hours (1Q23 and 2Q23 were 55.598 and 47.616 billion kilowatt-hours, respectively), the company's power generation increased by 17.404 billion kilowatt-hours in the first half of this year. Based on the calculation of the company's domestic hydropower feed-in tariff of 0.28,128 yuan/kilowatt-hour in 2023, excluding the impact of value-added tax factors, the increase in the amount of pre-tax profit brought to the company by increased power generation could reach 4.33 billion yuan. Since Xiangjiaba, Xiluodu, Wudongde, and Baihetan power stations pay corporate income tax at a 15% rate, and the above four power stations and the Three Gorges and Gezhouba power stations are calculated separately at 15% and 25% income tax rates, respectively, the additional power generation capacity of the four power plants with tax concessions and the Three Gorges and Gezhouba power plants is 88.32 and 8.572 billion kilowatt-hours, respectively. The corresponding incremental results after tax are 18.7 and 1.6 billion yuan respectively, which is expected to increase the company's profit after tax by 3.47 billion yuan.
Benefiting from interest rate cuts and increased investment returns, the company's performance can be further enhanced. The amount of the company's interest-bearing debt exceeds 300 billion yuan. Thanks to the company's active debt optimization, financial expenses for the first quarter decreased by 0.296 billion yuan year on year, down about 10% year on year. In the interest rate cut cycle, Changjiang Electric Power can reduce interest expenses through early loan repayment, optimization of debt structure, and replacement of old and new debt with abundant cash flow. In terms of investment income, the incoming hydropower situation continued to improve in the second quarter. Due to the company's participation in many hydropower companies, investment income is expected to maintain positive growth in Q2. Financial cost savings and increased investment returns are expected to continue to increase the company's net profit.
Profit forecasting and valuation: Under the combined effects of multiple factors such as increased electricity generation, reduced financial expenses, and increased investment returns, the company's performance in the first half of the year is expected to grow rapidly. We maintain the 2024-2026 net profit forecast of 33.253, 35.117, and 37.557 billion yuan. The current stock price corresponds to PE at 22, 20, and 19 times, respectively, and maintains a “buy” rating.
Risk warning: Incoming water is affected by the weather and is difficult to predict accurately.