According to the Securities Times APP, Changjiang Securities released research reports stating that the call for the era of 'carbon neutrality' and the market-oriented reform of the electricity sector will run through the entire "14th Five-Year Plan" period. The intrinsic value of power operators will be comprehensively reassessed. The pressure on thermal power generation has eased slightly, but market-based electricity prices have fallen slightly; water supply continues to improve, dominating electricity performance. In addition, green energy operations have improved, major repairs limit nuclear power performance in the first three quarters before 2024; asset disposal affects grid revenue, but benefits from improved water supply, and the self-owned hydropower business of grid companies has also improved. With the fall in coal prices resulting from the optimization of supply and demand patterns, thermal power operations are expected to continue to improve, while investments in new energy will remain promising. The investment value of high-quality thermal power transformation and clean energy is being continuously bullish.

Changjiang Securities' main points are as follows:

Thermal Power: The pressure on thermal power generation has eased slightly, and market-based electricity prices have fallen slightly.

The pressure on thermal power generation has gradually eased over the seasons, and cost leads the performance in the first three quarters of 2024. Water supply restoration has squeezed the output space of thermal power generation, with thermal power generation capacity only increasing by 1.85% year-on-year, and the electricity price has also loosened under the impact of falling coal prices. Therefore, the revenue of the thermal power sector decreased by 1.67% year-on-year. However, under the impact of falling coal prices, the net income attributable to the mother increased by 11.20% year-on-year.

Looking at the third quarter, market-based electricity prices have fallen slightly. In terms of costs, market coal prices continued to fall year-on-year in the third quarter, but due to the smoothness of long-term coal entering the furnace, the change in coal prices entering the furnace is limited year-on-year. The increase in electricity generation caused fuel costs to increase more than income, resulting in a 22.27% year-on-year decrease in the net income attributable to the mother in the thermal power sector in the third quarter. Performance met expectations under the high base of the same period last year, and there are still bright spots, such as the net profit of Huaneng Power International's coal-fired power generation after restoring impairment reaching 0.031 yuan per kilowatt-hour, an increase of 0.004 yuan per kilowatt-hour year-on-year. Operating performance is still in the recovery range.

Hydropower: Water supply continues to improve, dominating electricity performance.

In the first three quarters of 2024, China's replenishment of water continued, and the national hydropower generation increased by 16.0% year-on-year in the first three quarters. However, due to the abundance of the dry and wet electricity pricing mechanism in most hydropower companies, the increase in the proportion of low-priced abundant water period electricity led to a year-on-year increase in the operating income of the hydropower sector by 11.13%, lower than the growth rate of electricity generation. However, thanks to the dilution effect of the fixed costs brought about by the high electricity generation, the net profit attributable to the parent of the hydropower sector increased by 24.92% year-on-year.

After entering the third quarter, water inflow gradually weakened month by month, but still maintained high growth overall, resulting in a year-on-year increase of 11.86% in operating income of the hydropower sector in the third quarter; net profit attributable to the parent increased by 24.48% year-on-year. However, there is differentiation among different river basins, with the Yangtze River basin still performing well while the Yungui River basin has experienced a weakening water inflow, resulting in performance differentiation among different hydropower companies. China Yangtze Power showed more resilience with a third-quarter performance increase of 31.81% year-on-year, while hydropower companies in the Yungui region faced certain pressure in the third quarter.

New energy generation: The operation of green electricity has improved, limiting the performance of nuclear power in the first three quarters of 2024.

Under the influence of weak wind conditions and pressure on electricity prices, the operating income of the new energy generation sector only increased by 0.76% year-on-year; net profit attributable to the parent decreased by 5.79% year-on-year. Due to concentrated major repairs in two nuclear power companies and pressure on nuclear power generation, the net profit attributable to the parent of China National Nuclear Power and CGN Power Co., Ltd. decreased by 4.22% and increased by 2.93% year-on-year, respectively, in the first three quarters. With the restoration of wind conditions in the third quarter, coupled with the lower base in the same period last year, the net profit attributable to the parent of the sector increased by 1.27% year-on-year in the third quarter, with a sequential growth rate increase of 17.14 percentage points.

Grid: Asset disposal affecting revenue, high performance of self-owned hydropower.

In the first three quarters of 2024, the main business operations of the grid sector have all shown some recovery, but due to the impact of Guangxi Energy divesting its oil business, the asset reduction on the financial statements, resulting in a year-on-year decrease of 28.85% in operating income of the grid sector for the first three quarters. However, thanks to the improvement in water inflow, the grid company's self-owned hydropower business has also turned for the better, with a year-on-year increase of 63.62% in net profit attributable to the parent of the sector.

Investment Value

Power generation operations recommend focusing on high-quality transformation of thermal power generation companies such as China Resources Power, GD Power Development, China Power, Huadian Power International Corporation, Huaneng Power International, Inc., Fujian Funeng, and operators of the CNI Yangtze Index.

The hydroelectric sector recommends high-quality large hydropower companies China Yangtze Power (600900.SH), SDIC Power Holdings (600886.SH), and Huaneng Lancang River Hydropower Inc. (600025.SH);

Under the background of the triple bottom resonance of new energy, the industry's investment outlook will improve, recommending China Longyuan (00916), Zhongmin Energy (600163.SH), China National Nuclear Power (601985.SH), and Three Gorges Energy (600905.SH);

The power grid sector recommends the pioneer in distributed electricity sales expected to develop comprehensive energy services after the acquisition by Three Gorges Group, Chongqing Three Gorges Water Conservancy and Electric Power (600116.SH).

Risk Warning: There are risks of deterioration in electrical supply and demand and policies; non-seasonal risks of coal prices.