The Zhitong Finance App learned that Dongwu Securities released a research report saying that in reviewing the historical thermal power market, 2024 will pay more attention to regional electricity supply and demand+dividend rate. The thermal power sector has never been a high-dividend sector recognized by mainstream investors, but with the steady decline in thermal coal prices, 2023-2025 is expected to be a year of continuous growth in the thermal power industry's performance. In this context, mainstream thermal power companies are expected to drastically increase their dividend rate levels, and the thermal power industry is expected to usher in high dividend allocation opportunities. It is recommended to focus on the industry's three main investment lines: main investment line 1: regional thermal power companies supported by tight electricity supply and demand. Main investment line 2: National capacity electricity prices have been implemented, and focus on national power plants with high asset quality. Main investment line 3: Focus on coastal power plants when overseas thermal coal supply is likely to be further opened up.

The main views of Dongwu Securities are as follows:

Reviewing the historical thermal power market, pay more attention to regional electricity supply and demand+dividend rate in 2024

Dongwu Securities said that it will review the stock price trend of the mainstream thermal power company Huadian International from 2022 to the end of February 2024, defining it as two rounds: April 2022 to November 2023 and December 2023. The 2022 thermal power capacity price policy (power system reform) is the core driving factor for the rise in the thermal power sector from April 2022 to November 2023; starting in December 2023, based on the implementation of all major electricity reform policies, the thermal power investment side paid more attention to regional electricity supply and demand and dividend rates in 2024.

Benefiting from the declining trend in capital expenditure in the coal power industry, the dividend ratio of the coal power industry is expected to increase significantly

Dongwu Securities pointed out that the National Development and Reform Commission has determined a three-step plan for coal power: “capacity increase and control” during the 14th Five-Year Plan period, “capacity control reduction” in the 15th five, and “capacity reduction” after the 15th five. With the advent of the era of volume control and reduction in the coal power industry, the downward trend in capital expenditure in the coal power industry has basically been determined, and the industry dividend ratio is expected to increase significantly.

Thermal coal price judgment

Dongwu Securities believes that thermal coal prices will maintain a steady downward trend in 2024-2025. The price center is expected to drop 100-200 yuan/ton to 800-900 yuan/ton in 2024; thermal coal prices will maintain a steady downward trend in 2024, and the price center will drop 100-200 yuan/ton to 800-900 yuan/ton.

Thermal coal prices were not strong during the peak season and fell below 900 yuan/ton in March '24. As of 2024/3/18, the price of 5,500 kcal at Qinhuangdao Port was 872 yuan, -23% year over year. From November 23 to February 24, it remained at 910-950 yuan/ton, falling below 900 yuan/ton in the off-season in the past 2 weeks. At the current level of electricity prices, Dongwu Securities expects the market price of thermal coal to be 800-850 yuan/ton as the break-even point for power plants. Considering that the current coal price ratio is around -23%, which is far greater than the decline in electricity prices in 2024 (electricity prices mostly fell 1-5% year on year); therefore, it is basically determined that the thermal power sector's 24-year performance will further improve year on year.

The three main lines of investment in the thermal power industry:

Comparing the operating performance of mainstream thermal power companies: Dongwu Securities explores the value of mainstream thermal power companies from different dimensions from the cost composition of thermal coal (imports, long-term cooperation, market share), the share of thermal power in the installed structure, the regional electricity supply and demand situation, and the expected dividend rate.

(1) Main line of investment: Regional thermal power companies with support for electricity prices in a tight balance between electricity supply and demand. It is recommended to focus on Shenneng Co., Ltd. (600642.SH), Zhejiang Electric Power (600023.SH), Funeng shares (600483.SH), and recommend Waneng Electric Power (000543.SZ).

(2) Main investment line 2: National capacity electricity prices have been implemented, and attention is paid to national power plants with high asset quality. We recommend focusing on Guodian Electric Power (600795.SH) and Huadian International (600027.SH).

(3) Main investment line 3: Focus on coastal power plants in the light of the possibility of further opening up overseas thermal coal supply. It is recommended to focus on Huaneng International (600011.SH) and Guangdong Electric Power (000539.SZ).

Risk warning: policy risk; risk of sharp fluctuations in coal prices; macroeconomic risk.