Water inflow rebound facilitated a rise in 1H24 earnings
GEPIC Energy Development’s (GEPIC ED) 1H24 revenue/attributable NP were RMB1,235/287mn (up 14.1/18.1% yoy), with the latter at the upper range of its profit alert (RMB275-295mn). For 2Q24, revenue/attributable NP changed by +0.5/-17.6% yoy to RMB730/235mn, with the yoy drop in the latter mainly owing to: 1) a yoy decline of 11% in on-grid hydropower tariffs; and 2) a yoy drop of 16% in wind power utilization hours due to tepid wind resources. We maintain our 2024/2025/2026 attributable NP forecasts at RMB686/712/767mn, with EPS of RMB0.43/0.44/0.48. We expecting GEPIC ED to elevate its on-grid wind power tariffs against macro headwinds and value the stock at 16x 2024E PE, above its peers’ average of 14.8x on Wind consensus. Our target price is RMB6.85 (previous: RMB6.97). Maintain BUY.
1H24 hydropower NP +51% yoy, 2Q24 wind power utilization hrs -16% yoy
Due to a rebound in water inflow, 1H24/2Q24 on-grid hydropower output grew 11/10% yoy to 2.41/1.67bn kWh. GEPIC ED’s 1H24 hydropower NP jumped 51% yoy to RMB168mn. As the majority of its hydropower tariffs is approval-based, the 2Q24 on-grid hydropower tariffs dipped 11% yoy to RMB0.251/kWh (tax included), mainly due to rising contribution from low-tariff on-grid hydropower output. Its 2Q24 on-grid wind power generation fell 7% yoy to 0.53bn kWh, chiefly owing to a yoy drop of 16% in utilization hours, but on-grid wind power tariffs picked up 5% yoy to RMB0.572/kWh. Due to increased PV installations, its on-grid PV power output jumped 116% yoy in 2Q24 despite a yoy decline of 16% in PV utilization hours that quarter. For 1H24, its new energy NP fell 1% yoy to RMB220mn.
Premium coal-fired power assets to boost profit and valuation
The injection of Changle has kicked off. Changle’s NP was RMB0.07/kWh for 2023, matching that of integrated coal-power companies. For 2024-2026, Changle Phase I’s utilization hours are contractually guaranteed to be no less than 5,000 hours. As Hunan is on the low voltage side of the system, the margin for coal-fired tariff is underpinned by high coal prices. Phase II, scheduled for consumption within the home province and peak-shaving in nearby provinces, is expected by the company to be commissioned at end-2025. We estimate Changle’s NP to be RMB0.06/0.06/0.05 per kWh for 2024/2025/2026, with ROE of 19/20/20%, which should in our view lift attributable NP of the company by 109/109/103% upon injection. Based on its commitment to intra-industry competition, we expect asset injection of the Wuwei/Zhangye plants (2023 NP: RMB39/112mn) by end-2025.
Risks: water inflows, asset injection, and UHV construction missing our expectations; coal prices higher than we expect.

GEPIC Energy Development (GEPIC ED), GEPIC’s sole listed platform, controlled 1.7GW of hydropower and 1.84GW of new energy (NE) at end-2023. Its net profit (NP) from NE was RMB0.15/kWh for 2023, and we expect profit declines to be controllable in the short term. Indeed, we estimate narrower depreciation costs in existing hydropower equipment to lift its NP by RMB0.018/kWh for 2031 vs 2023. GEPIC ED is to purchase Changle from GEPIC solely through equity issuance; Changle’s NP was RMB0.07/kWh for 2023, rivaling that of integrated coal-power companies, and we estimate its EPS rising 15/15/12% for 2024/2025/2026, supporting a re-rating for GEPIC ED. We estimate GEPIC ED’s 2024/2025/2026 attributable NP at RMB686/712/767mn, with EPS of RMB0.43/0.44/0.48, and value the stock at 16.3x 2024E PE. Our target price is RMB6.97. Initiate at BUY.