In 24Q3, the year-on-year growth rate of thermal power performance turned negative, while hydropower remained at a high level, and nuclear power continued to maintain a relatively stable performance, with green electricity showing marginal improvement.
According to the Securities Times APP, China Galaxy Securities released a research report stating that the performance of the power industry in 24Q3 increased year-on-year, with significant contributions from hydropower and green electricity. From 24Q1-3, the power industry achieved a net income attributable to the parent of 142.87 billion yuan, a year-on-year increase of +12.9%. In 24Q3 alone, it achieved a net income attributable to the parent of 55.38 billion yuan, a year-on-year increase of +1.9%. By segment, the year-on-year growth rate of thermal power performance turned negative in 24Q3, while hydropower remained at a high level, and nuclear power continued to maintain a relatively stable performance, with green electricity showing marginal improvement. Bullish on the thermal power sector due to policy incentives, continued improvement in performance, and valuation potential; long-term bullish on the hydropower and nuclear power sectors with high earnings certainty and strong dividend capabilities. New energy is already at the bottom level.
China Galaxy Securities' main points are as follows:
Thermal power: Regional differentiation affects overall performance.
In 24Q3, the SW thermal power sector achieved an operating income of 333.434 billion yuan, a year-on-year increase of +0.8%, and achieved a net income attributable to the parent of 19.346 billion yuan, a year-on-year decrease of -16.8%. In terms of electricity generation, in 24Q3, national thermal power generation increased year-on-year, but there was differentiation between different regions. Eastern provinces with strong electricity demand and a dominance of thermal power in the power structure led to regional thermal power companies achieving faster growth in electricity generation rate compared to national companies, becoming one of the important factors influencing the performance differentiation in 24Q3.
On the electricity price front, in 24Q3, the electricity price for thermal power companies decreased year-on-year, but the rate of decline narrowed; in terms of costs, the coal price in 24Q3 decreased by -2.1% year-on-year, but considering the cycle of power plant inventory, it saw a slight increase year-on-year. The decrease in electricity prices combined with rising costs led to a year-on-year decline in the sector's profitability. In addition, the sector incurred an asset impairment loss of 1.815 billion yuan in 24Q3, a year-on-year increase of +45%, affecting performance.
Hydropower: Overall performance is impressive, but there are differences in performance across different river basins.
In Q3 of 2024, the operating income of the SW hydropower sector reached 62.359 billion yuan, an increase of 8.2% year-on-year; the net income attributable to the parent company reached 25.969 billion yuan, an increase of 20.5% year-on-year. In terms of electricity generation, the water inflow situation in different river basins in Q3 of 2024 was mixed, with good water inflow in rivers such as the Jinsha River, Yalong River, Hongshui River, and Yangtze River, while weaker water inflow in rivers such as the Dadu River, Lancang River, and Qingjiang River led to varying increases and decreases in electricity generation for major hydropower companies. In terms of electricity prices, most hydropower enterprises saw a year-on-year increase in grid electricity prices in Q3 of 2024, with increases ranging from 1.93% to 4.65%. Looking ahead, the reservoir group in the upper reaches of the Yangtze River has basically completed the annual water storage task, which is expected to support electricity generation performance in Q4 of 2024 and Q1 of 2025.
Nuclear power: Performance is affected by unit commissioning and maintenance arrangements.
In Q3 of 2024, the SW nuclear power sector achieved an operating income of 42.438 billion yuan, an increase of 5.2% year-on-year; the net income attributable to the parent company reached 5.926 billion yuan, a decrease of 1.7% year-on-year. The performance growth rates of the two nuclear power companies in Q3 of 2024 deviated, mainly due to differences in unit commissioning and maintenance arrangements leading to divergent year-on-year growth rates in electricity generation. Among them, China General Nuclear Power Corporation's Fangchenggang Unit 4 has commenced commercial operation, and Taishan Unit 1 has resumed normal operation, contributing incremental electricity generation in Q3 of 2024; China National Nuclear Corporation's electricity generation declined year-on-year due to an increase in outage days, the impact of Typhoon in Hainan, and minor maintenance of Fuqing Unit 4. Looking ahead, Zhangzhou Unit 1, Huizhou Unit 1 are expected to start operating soon, contributing to performance growth for the two companies in 2025.
Green electricity: Marginal improvement in performance, significant improvement in cash flow.
In Q3 of 2024, the green electricity sector achieved an operating income of 20.23 billion yuan, a decrease of 0.6% year-on-year; the net income attributable to the parent company reached 4.14 billion yuan, an increase of 18.5% year-on-year. The operating net cash flow for Q1-Q3 of 2024 was 30.25 billion yuan, an increase of 29% year-on-year, showing a more significant improvement. In Q3 of 2024, improved wind resources combined with a substantial increase in installed capacity drove year-on-year growth in electricity generation for companies. However, grid electricity prices continued to be under pressure, resulting in a year-on-year decline in sector revenue. Taking into account the greater reduction in costs, the net income growth rate significantly outperformed the revenue growth rate. Additionally, the sale of assets by China Longyuan and China Green Electricity in Q3 of 2024 also made a significant contribution to the sector's performance.
In terms of targets: Focus on Huaneng Power International, Inc. (600011.SH), Anhui Wenergy (000543.SZ), Sichuan Chuantou Energy (600674.SH), China Yangtze Power (600900.SH), CGN Power Co.,Ltd. (003816.SZ), etc.
Risk warnings: Risks of suboptimal resource conditions; risks of lower-than-expected electricity demand; risks of grid electricity price declines exceeding expectations; risks of coal price increases exceeding expectations, and so on.
