Backed by the SDIC Group, hydropower contributes to core profits. The company is the only listed platform for SDIC's power business with a diversified portfolio of power generation assets. By the end of '23, the company's installed power generation capacity had reached 40.8566 million kilowatts, of which water and fire scenery were 2128, 12.5408, 3.1825, and 3.8533 million kilowatts, respectively. Thanks to a good level of profit, the hydropower business revenue contribution rate in '23 was 45%, but the gross profit contribution reached 75%, which is the company's core profit source.

Hydropower: With high-quality resources in the luxury river, it has established the company's basic market. The company's hydropower assets are mainly located in the Yajiang River basin. At the end of '23, the installed capacity was 19.2 million kilowatts, accounting for 90% of the total hydropower installed capacity. Yazhujiang's profitability is at the top of comparable companies. Net profit for 20-23 was 0.081-0.101 yuan/kilowatt-hour. Changjiang Electric Power, Huaneng Hydropower, and Dadu River were 0.087-0.106, 0.052-0.077, and 0.036-0.044 yuan/kilowatt-hour respectively during the same period. We think the driving factors behind the net profit of Yazhujiang Electric Power come mainly from two aspects: 1) the high electricity price brought about by outbound consumption, which was 0.274 yuan/kilowatt-hour (excluding tax) in 23, higher than the 0.023-0.060 yuan/kilowatt-hour of comparable companies; 2) the high utilization hours brought about by strong regulation ability and relatively small fluctuations in incoming water, which was 4,427 hours in 23, second only to Yangtze River Electric Power. Looking ahead, we believe that short-term incoming water improvements and the three major regulatory reservoirs are close to full capacity to support the company's 24-year performance; in the medium term, the Kara, Mengdigou, and Yagen first-level hydropower stations are expected to increase around 2030, with a total installed capacity of 3.72 million kilowatts, accounting for 19% of the Yazhujiang River's previous installed capacity; in the long run, after the Kara, Mengdigou, and Yagen first-level hydropower plants are put into operation, there are 695 square kilowatts of hydropower to be developed.

New energy: Water and landscape develop collaboratively to create a second growth curve. The company's new energy development follows the two paths of Yazhu River and Feiyazhu River. Among them, on the Yazhujiang side, thanks to good resource benefits, the number of hours used for wind and light projects was 387, 449-549 hours; in addition, the additional electricity generation efficiency generated by complementary water and landscape operation reached 12%-18%, which helped achieve a profit level superior to that of comparable companies. The net profit and net profit margin for electricity in '23 were 0.154 yuan/noon watt-hour, 37%, respectively, higher than the comparable company's 0.029 yuan/kilowatt-hour and 8.8 pct, respectively. Looking forward to the future, the Yazhu River Basin has more than 6,000,000 kilowatts of scenic resources, supporting the company's long-term growth; in the short term, we expect 4.84 million kilowatt new energy projects to be put into operation in 24-26 years, accounting for 299% of the installed capacity not in operation in 23 years. On the Feiyajiang side, the company's new energy projects have blossomed all over the country, and there are plenty of reserves of projects under construction. As of '23, the scale of the project under construction was 4.29 million kilowatts, accounting for 79% of the installed capacity.

Thermal power: Installed capacity is 40% elastic, and profit levels continue to recover. The company's thermal power business is mainly located in coastal regions such as Fujian, Guangxi, and Tianjin. We expect the company's new installed capacity of 4.98 million kilowatts from the early 15th to the 15th century, accounting for 40% of the unaccumulated installed capacity in 23 years, with great growth elasticity. Relying on the cost performance advantage of imported coal, the company's profit level of thermal power generation is superior to that of comparable companies. The net profit for 23 and 24H1 kilowatt-hour electricity was 0.026 and 0.039 yuan/kWh, respectively. Looking forward to the future, we believe that in the context of loose global coal supply and demand, imported coal prices will remain weak, supporting the steady rise in the company's thermal power profits.

Investment suggestion: The company's net profit for 24-26 is estimated to be 7.79, 8.7, and 9.49 billion yuan, respectively, corresponding to 24EPE16.22x and PB1.99x. Compared with comparable 24e weighted average valuations of 19.11x and 2.31x, there is still room for improvement. Under the absolute valuation method, the company's reasonable value range per share is 16.53-22.68 yuan.

Risk warning: the risk of incoming water falling short of expectations; the risk of a sharp rise in coal prices; the risk of falling feed-in tariffs; the risk that the construction progress and commissioning time of new projects fall short of expectations, etc.