Key points of investment:

SDIC Electric Power released its 2024 semi-annual report on August 29. The first half of the year achieved operating income of 27.102 billion yuan, an increase of 2.79% over the previous year; net profit to mother was 3.744 billion yuan, an increase of 12.19% over the previous year.

Among them, the second quarter achieved operating income of 12.994 billion yuan, a year-on-year decrease of 0.89%; net profit to mother was 1.708 billion yuan, a decrease of 0.87% year-on-year.

The company is the third-largest listed company with hydropower installed capacity

The company is the only electricity asset listing platform under China Development Investment Group. As of the end of June 2024, China Development Investment Group held 51.32% of the shares. As the second-largest shareholder, Changjiang Electric Power shares 17.47% of the shares with Changdian Investment. The Yalong River Company, which holds 52% of the company's shares, is the only hydropower developer in the main stream of the Yalong River. By the end of the first half of 2024, the company's hydropower holdings had an installed capacity of 21.3045 million kilowatts, ranking third among listed companies. The company's installed power generation structure is mainly clean energy. Clean energy accounts for 68.53% of the installed capacity, of which hydropower accounts for 50.78% and new energy accounts for 17.75%. The company's thermal power installations are mainly large units with high parameters. The million-kilowatt units account for 60.76% of the installed capacity of the holding thermal power plant.

The company's profit increase in the first half of the year was mainly due to factors such as abundant incoming hydropower and lower fuel costs for thermal power. According to the operating data for the first half of the year, the company's feed-in electricity volume increased by 8.66% year on year, and feed-in tariffs decreased by 2.84% year on year. By type, due to abundant incoming water in the hydropower station basin, the company's hydropower generation capacity increased 10.05% year-on-year, eliminating the impact of a 2.24% drop in hydropower feed-in tariffs. Regional incoming water is plentiful, squeezing the power generation space for Guangxi and Guizhou thermal power companies, but the commissioning of two 0.66 million units of SDIC Qinzhou Second Power Company and the increase in social electricity consumption and outbound electricity in Fujian Province increased the company's thermal power generation capacity by 2.56% year on year, which also offset the impact of the 1.48% year-on-year drop in thermal power feed-in prices. New energy projects have been put into operation one after another, causing wind power and photovoltaic power generation to increase by 5.49% and 112.39%, respectively. Since the newly put into production of photovoltaic units are affordable Internet access units, PV feed-in tariffs have dropped a lot, by 30.82%.

In the first half of the year, incoming hydropower generation increased by more than 21%. Accelerating the construction of new power systems is conducive to high-quality development in the power industry

In the first half of the year, there was a lot of incoming water and electricity. According to data from the National Bureau of Statistics, hydropower generation according to national regulations increased by 21.4% year on year. In the second quarter, due to the year-on-year increase in precipitation and low base factors in the same period of the previous year, hydropower generation increased 21.0%, 38.6%, and 44.5%, respectively, in April, May, and June. In August 2024, the National Development and Reform Commission, the National Energy Administration, and the National Data Administration issued the “Action Plan to Accelerate the Construction of New Electric Power Systems (2024-2027)”, which proposes to carry out 9 special actions, including optimizing power system regulation capacity and promoting the construction of next-generation coal power standards, to accelerate the construction of new power systems to achieve effective results, which is conducive to the high quality of the power industry. Quantitative development

The company increases R&D expenses and reduces financial expenses

The company increased R&D expenditure, and R&D expenses increased 152% year-on-year in 2023. The company promotes research and pilot applications on new energy topics such as green hydroammonia alcohol, photovoltaic sand control, offshore wind power, and marine ranching. Since 2024, 70 new patents have been granted. By promoting loan replacement and interest rate cuts to reduce financial expenses, the company's financial expenses fell 14.59% year on year in 2023, and financial expenses fell 9.08% year on year in the first half of 2024.

Proposed introduction of additional social security funds to facilitate the long-term development of the company

The company announced on September 18 that it plans to issue 0.55 billion A shares to the Social Security Foundation at a price of 12.72 yuan/share, and plans to raise more than 7 billion yuan in capital. The net capital raised will be used for the construction of the Mengdigou Hydropower Station and Kara Hydropower Station projects. After the completion of the Meng and Ka hydropower projects, they will be operated jointly with the Lianghekou Power Station to play a peak-shifting role, which will benefit the electricity supply in central China. The social security foundation is long-term capital and patient capital, which can not only improve the internal stability of the capital market and boost investor confidence, but will also help the company reduce balance ratio, improve cash flow, and reduce financial expenses one step at a time.

Increase the dividend ratio to 55%

In 2021-2023, the company's dividend amounts were 1.219 billion yuan, 2.05 billion yuan, and 3.688 billion yuan respectively. The cash dividend ratio increased from 50% in 2021 to 55% in 2023. According to the closing price of 15.96 yuan/share on September 25, the dynamic dividend rate is 3.10%. On September 18, the company issued the “Shareholder Return Plan for the Next Three Years”. The annual cash dividend ratio from 2024 to 2026 will not be less than 55%. At the same time, the company plans to pay mid-term dividends when conditions are available.

Profit forecasting and valuation

The company is a comprehensive energy and power listed company under China Development Investment that mainly focuses on clean energy and combines both water and fire. It ranks third among listed companies for hydropower installations. Benefiting from abundant incoming water and lower fuel costs in the first half of the year, the company achieved steady growth in performance. The company plans to introduce a war investment social security fund to promote the construction of hydropower projects in the Yalong River Basin, accelerate the development of clean energy businesses, and continuously optimize the thermal power business. In addition, the company will also continue to make efforts in overseas business, energy storage (including pumped energy storage), hydrogen energy, and integrated energy.

The company's net profit attributable to shareholders of listed companies in 2024-2026 is estimated to be 7.712 billion yuan, 8.368 billion yuan, and 9.153 billion yuan, respectively. The corresponding earnings per share are 1.03, 1.12, and 1.23 yuan/share. Based on the closing price of 15.96 yuan/share on September 25, the corresponding PE is 15.43X, 14.22X and 13.00X, respectively. Considering the company's valuation level and industry development prospects, the first coverage will give the company an “increase in shares” Investment ratings.

Risk warning: risk of fluctuations in incoming water; rising fuel costs; increased competition in the new energy business; risk of falling electricity prices; risk of overseas business; and other unpredictable risks.