According to Zhitong Finance APP, China Merchants has released a research report stating that, benefiting from the convenient delivery of electricity through the ultra high pressure in Sichuan-Chongqing, Guoneng Dadu River's potential earnings elasticity exceeds 16%. If the market trading ratio improves, the resulting performance enhancement effect will be more apparent. It is recommended to pay attention to GD Power Development; on one hand, the high electricity prices for delivered electricity after the commissioning of ultra high pressure are expected to increase, bringing profit enhancements for the company; on the other hand, the commissioning of hydropower stations like Shuangjiangkou will lead to an increase in electricity generation, and the collaborative regulation of the laddered hydropower stations is expected to bring additional benefits, further enhancing the company's performance.

The main points of China Merchants Securities are as follows:

The convenient delivery of electricity through the ultra high pressure in Sichuan-Chongqing allows Guoneng Dadu River's potential earnings elasticity to exceed 16%.

Dadu River has favorable development conditions and possesses relatively scarce hydropower resources, with upstream, midstream, and downstream planning for 10/8/10 laddered power stations respectively. The currently installed capacity that has been commissioned is 17.42 million kilowatts. GD Power Development's hydropower units are mainly concentrated in its subsidiary, Guoneng Dadu River. For a long time, due to the lack of smooth delivery channels, the Dadu River basin has faced serious problems of water abandonment, and the company's hydropower performance growth has been limited. The Sichuan-Chongqing ultra high pressure AC project is one of the key tasks in Sichuan's "14th Five-Year" electricity planning, and once completed, it will transmit over 35 billion kilowatt-hours of electricity, expected to be operational before the summer peak in 2025.

After the commissioning of the ultra high pressure in Sichuan-Chongqing, some hydropower from Guoneng Dadu River is expected to be delivered to Chongqing, with an estimated increase in the delivered electricity price by 0.045 yuan per kilowatt-hour. It is estimated that if 15% of Guoneng Dadu River's hydropower is delivered to Chongqing, not considering the increase in electricity generation from newly commissioned capacity, the performance increment in 2026 and 2027 will exceed 0.3 billion yuan, corresponding to GD Power Development's 2023 hydropower sector performance elasticity exceeding 16%, and overall performance elasticity exceeding 5%.

With increases in installed capacity and coordinated regulation, hydropower performance in 2026 and 2027 is expected to increase by 40% and 67%.

1) Installed capacity growth: The potential for medium- to short-term installed capacity at Guoneng Dadu River is sufficient. The four hydropower stations under construction at Shuangjiangkou, Jinchuan, Zhenoudan Level 2, and Shaping Level 1 are expected to be put into operation in 2026 and 2027. Once in operation, this will boost the company's hydropower generation capacity, and the increase in electricity output may drive performance growth. It is estimated that the profit increments from the completion of hydropower stations in 2026/2027 will reach 0.51/0.728 billion yuan, and considering the shareholding ratio, the performance increment for GD Power Development is expected to be 0.291/0.385 billion yuan.

2) Joint adjustment and increased issuance: The Shuangjiangkou hydropower station has annual adjustment capacity, smoothing water fluctuations through effective use of supply. The effect of increased issuance significantly enhances the parent company's profits. It is estimated that in 2026/2027, the increased issuance effect from Shuangjiangkou hydropower station will yield net profits of 0.898/1.699 billion yuan, leading to performance increments for GD Power Development of 0.452/0.854 billion yuan. Combining the growth from installed capacity and the benefits of joint scheduling and increased issuance, the company is expected to achieve performance improvements of 0.743/1.239 billion yuan in 2026/2027, corresponding to a performance elasticity of 40%/67% for GD Power Development's hydropower sector in 2023 and an overall performance elasticity of 13%/22%.

At the same time, with the rapid growth of electricity consumption in the Sichuan-Chongqing region and the ongoing increase in the proportion of market-oriented transactions locally, the market price of hydropower in Sichuan is expected to rise. It is estimated that when the proportion of market trading reaches 65%, if the local hydropower market trading price in Sichuan increases by one cent, it will enhance the performance of Guoneng Dadu River by 0.15 billion yuan, corresponding to a performance elasticity of 8% for GD Power Development's hydropower sector in 2023 and an overall performance elasticity of 3%. If the proportion of marketization increases, the performance enhancement effect will be even more evident.

Investment recommendation: Strongly recommend GD Power Development (600795.SH).

1) In the short term: A significant improvement in water supply is expected in the second and third quarters of 2024, which is likely to benefit the company's hydropower performance; the decline in coal prices will create substantial flexibility for the thermal power capacity and pricing policies;

2) In the medium to long term: The installed capacity of Dadu River hydropower under construction has high elasticity, and with the opening of the ultra high pressure lines and the commissioning of the Shuangjiangkou power station, the company is likely to resolve the issues of hydropower consumption disposal. The reversal of elasticity could be maximized. During the 14th Five-Year Plan, the company will have the highest installed capacity for new energy and will fully benefit from the energy transition and the coordinated development of multiple energy sources.

It is recommended to pay attention to other quality hydropower symbols such as Sichuan Chuantou Energy (600674.SH), SDIC Power Holdings (600886.SH), and China Yangtze Power (600900.SH).

Risk warning: Water supply not meeting expectations, hydropower electricity price increases not meeting expectations, project construction progress not meeting expectations, economic slowdown leading to weak end-user electricity demand, and slower than expected progress in electricity market reforms.