Key points of investment

Incident: The company announced its 2024 mid-year report, achieving operating income of 39.377 billion yuan, up 0.26% year on year; net profit to mother of 7.109 billion yuan, up 2.16% year on year; net profit after deducting non-return to mother of 6.96 billion yuan, up 0.10% year on year; ROE (diluted) 6.15%, down 0.18 pct year on year.

Performance was steady, electricity consumption increased slightly, and comprehensive electricity prices fell slightly year-on-year due to market electricity prices. The company's performance grew steadily in the first half of 2024, achieving revenue of 39.377 billion yuan, an increase of 0.26%; net profit to mother of 7.109 billion yuan, an increase of 2.16%. The company's gross sales margin/net sales margin was 38.56%/27.55%, year-on-year change of -4.15pct/-0.23pct. By business, nuclear power sales achieved revenue of 30.374 billion yuan (-1.78%), and the construction installation and design service business achieved revenue of 7.998 billion yuan (+6.65%).

In the first half of 2024, the company operated nuclear power units safely and stably, with a cumulative feed-in capacity of 106 billion kilowatt-hours (+0.09%), of which the subsidiaries had a total feed-in power of 82 billion kilowatt-hours (-0.19%), and the joint venture had a total feed-in power of 24 billion kilowatt-hours (+1.03%). The company's market-based transaction ratio was about 52.4%, a slight decrease over the previous year, mainly because Fangchenggang Unit 4 did not participate in electricity market transactions. 2024H1, the subsidiary's integrated feed-in tariff of 0.37 yuan/kilowatt-hour (-1.6%), is mainly due to a 2.1% year-on-year decrease in the company's average market electricity price in the first half of the year, the subsidiary's electricity cost 0.19 yuan/kilowatt-hour (+7.9%), and the gross electricity profit of 0.18 yuan/kilowatt-hour, which is relatively stable.

In 2024, 6 new units were approved to lead the industry, and Fang4 will soon be connected to the grid to accelerate growth. As of 2024/6/30, the company managed 28 aircraft in operation and 10 units under construction (including 6 units from joint ventures). On August 19, 2024, the National Assembly approved 11 nuclear power units, and the company obtained 6 new approvals, with excellent performance. The new project was approved to accelerate the company's growth, increasing the deterministic installed capacity of nuclear power (including joint ventures) to 51.13 million kilowatts by 2030, increasing the flexibility of installed capacity to 67% compared to 2023. Judging from the pace of commissioning, the company expects to start production of 1/2/2/1/1 units in 2025-2029, contributing steadily to the increase in performance. As of 2024/6/30, listed companies commissioned and managed by the Group include Huizhou Nuclear Power and Cangnan Nuclear Power. Among them, Huizhou No. 1, Huizhou No. 2, Cangnan No. 1, and Cangnan No. 2 are expected to be put into operation in 2025/2026/2026/2027, respectively, and Huizhou No. 1 is expected to be connected to the grid in the second half of the year, and we expect the Group's nuclear power asset injection to accelerate growth.

The overhaul will affect the 24H1 feed-in power supply. In the second half of the year, the overhaul period will decrease year over year, and the power supply is expected to increase year over year.

The 2024H1 company completed 10 material replacement overhauls according to the plan (7 in the same period last year). The total number of replacement and overhaul calendar days was about 523 days, an increase of 110 days over the previous year, and the replacement and overhaul time increased significantly. Eight new material replacements are expected to be carried out in the second half of the year, a decrease of 1 compared to the second half of 2023.

Expenses are well controlled, and financial expenses have dropped significantly. During the 2024H1 period, the company's expense ratio decreased by 2.12 pct to 10.11%, and the sales expense rate/ management expense ratio decreased by 0.01pct/0.02pct/1.16pct to 0.04%/2.92%/6.35% year on year. Financial expenses also decreased by 0.45 billion yuan. Financial expenses continued to decline, and the company's expenses were well controlled.

Profit forecast and investment rating: We maintain the company's net profit of 11.8/12.3/13.3 billion yuan in 2024-2026 and 21/20/19 times PE in 2024-2026 (2024/8/23), respectively. Long-term high-quality operating assets for nuclear power, scarce and deterministic growth track, the company's ongoing projects are stable, projects under construction are being put into operation at an accelerated pace, and the “buy” rating is maintained.

Risk warning: Electricity prices fluctuate, installation progress falls short of expectations, nuclear power unit operation risks.