The Zhitong Finance App learned that Tianfeng Securities released a research report saying that the country introduced relevant policies to adjust the price mechanism for utility products is a long-term process. The ultimate goal is to clean up and eliminate unreasonable charges from utility companies, ensure reasonable and stable profits, and reasonable expenses for the safe operation of utility assets. In terms of recommended targets, hydropower asset suggestions focus on Changjiang Electric Power (600900.SH), SDIC Power (600886.SH); thermal power suggestions focus on Anhui Power (000543.SZ), Zhejiang Energy (600023.SH), etc.; gas recommendations focus on Blue Sky Gas () and China Resources Gas (01193); water proposals focus on investment in Guangdong (00270) and Brilliant Blue Environment (USD). 605368.SH 600323.SH
Tianfeng Securities's views are as follows:
Gas: Consumer gas prices continue to advance smoothly.
In 2023, the National Development and Reform Commission issued the “Guiding Opinions on Establishing and Improving the Upstream and Downstream Price Linkage Mechanism for Natural Gas”. Under its guidance, the gas price linkage reform process in all provinces and cities is gradually accelerated. Water supply: All regions are gradually implementing water price adjustments. In 2023, some provinces and cities such as Hunan, Sichuan, and Yunnan began to raise tap water sales prices; starting in 2024, Shanghai, Yuyao and other places are also following up with the adjustment of tap water prices. In May 2024, Guangzhou's tap water price reform was passed at a hearing, and the average water supply price increased by about 34.4%.
The profit model changed, and profit stability under the old price system was impacted.
Take urban gas companies as an example. In the early stages of development of urban fuel companies, a large part of the driving engine for profit growth came from connectivity. Now, the profit model of utility companies will gradually switch to a model that mainly relies on water supply, electricity supply, gas supply, and heating to obtain sales revenue and profits. The profit stability of utility companies has been impacted by fluctuations in upstream costs and imperfect terminal price formation mechanisms.
Water companies:
According to the Guangzhou Municipal Development and Reform Commission, current tap water prices in Guangzhou have been implemented since 2012, but water supply costs have changed significantly due to macroeconomic growth and investment in water supply construction; gas companies: Since the 2022 Russian-Ukrainian conflict, as international gas prices rise and upstream natural gas procurement costs increase, downstream forward price resistance is high, and urban fuel companies' gross margin and net profit continue to be under pressure.
The decline in profit stability is not conducive to utility companies fulfilling their social responsibilities, including the safety and maintenance of pipeline networks.
According to the “Notice of the General Office of the State Council on Issuing the Implementation Plan for the Aging Renewal and Renovation of Urban Gas Pipelines, etc. (2022)” (Guoguanfa (2022) No. 22), professional business units shall fulfill their financial responsibility for the aging renewal and renovation of urban gas pipelines, etc. within the scope of their services in accordance with the law, and it is proposed to basically complete the aging and upgrading tasks of urban gas pipelines, etc. by the end of 2025. The state has put forward new requirements for pipeline safety and maintenance in the urban combustion industry. In addition, gas purchase costs remain high, and urban fuel companies are generally under great pressure on the profit side and capital expenditure side.
The national policy is sustainable and supports the high-quality development of public utilities.
In December 2020, the General Office of the State Council forwarded five departments “Opinions on Cleaning Up and Regulating Urban Water Supply, Electricity, and Gas Heating Industry Charges to Promote High-Quality Industry Development” (State Administration Letter [2020] No. 129), proposing five policies and measures to clean up and abolish unreasonable charges, speed up the improvement of price formation mechanisms, strictly regulate price charging behavior, improve service levels, and improve the development environment; in June 2023, the “National Development and Reform Commission's Guiding Opinions on Establishing and Improving the Upstream and Downstream Price Linkage Mechanism for Natural Gas” (Development and Reform Price [2023] No. 682), proposed the establishment and improvement of a sound General requirements of the upstream and downstream price linkage mechanism for natural gas; in March 2024, the “Report on the Implementation of the 2023 National Economic and Social Development Plan and the 2024 Draft National Economic and Social Development Plan” proposed to promote price reforms for utilities and public services such as water, electricity and heat in an orderly manner.
Risk warning: risks such as macroeconomic growth falling short of expectations, implementation progress of relevant policies falling short of expectations, electricity demand falling short of expectations, and large fluctuations in coal prices.