According to Zhitong Finance APP, Huachuang Securities released a research report stating that 2024 will be a spectacular year for the electrical utilities industry, with thermal power, hydropower, and nuclear power being successively revalued by the market. Looking ahead to 2025, Huachuang Securities' core view is to focus on the reconstruction of the new order, essentially being bullish on the repair of the valuation system for undervalued sectors. In terms of investment sequence across sectors: first, prioritize offshore wind with higher certainty, while also paying attention to the marginal improvements in traditional green energy; second, suggest that thermal power can be opportunistic; lastly, the changes in dividends and styles complement each other, emphasizing the narrative around the stable assets' denominator.

In terms of individual stocks, Huachuang Securities is bullish on the reconstruction of the green energy valuation order. Strongly recommend Fujian's offshore wind operator Zhongmin Energy (600163.SH) and Fujian Funeng (600483.SH); thermal power can respond using three strategies. The performance expectations for thermal power in the medium-short term of one year remain the main pricing logic in the market, suggesting to focus on central enterprises Huadian Power International (600027.SH), Huaneng Power International, Inc. (600011.SH), etc.; for hydropower and nuclear power, attention should be paid to top-down narratives. For hydropower, it is suggested to focus on China Yangtze Power (600900.SH), etc.; for nuclear power, it is suggested to focus on China National Nuclear Power (601985.SH), CGN Power Co., Ltd. (003816.SZ).

Huachuang Securities' main views are as follows:

2024 will be a spectacular year for the electrical utilities industry, with thermal power, hydropower, and nuclear power being successively revalued by the market. Looking ahead to 2025, our core view is to focus on the reconstruction of the new order, essentially being bullish on the repair of the valuation system for undervalued sectors. In terms of investment sequence across sectors: first, prioritize offshore wind with higher certainty, while also paying attention to the marginal improvements in traditional green energy; second, we suggest that thermal power can be opportunistic; lastly, the changes in dividends and styles complement each other, emphasizing the narrative around the stable assets' denominator.

The first recommendation is offshore wind, supported by three key logics. First is the long-awaited policy response; the market for green energy has been relatively dormant for over two years since peaking in 2021, with little policy response during that time; recent policies have warmed up, and the offshore wind policy is expected to reverse. Second is its solid fundamentals, which include excellent absorption capacity and profit protection from higher prices. Third is the greater development space; considering the potential growth in capacity in coastal provinces, offshore wind and nuclear power are expected to be better options for future coastal provinces, with offshore wind perhaps having even greater potential. In 2023, the national offshore wind capacity was only 37GW, accounting for less than 3% of the total installed capacity in the country, indicating a very considerable potential for future development.

Secondly, the marginal changes in green energy are also worth noting, as the valuation system urgently needs to be sorted out and reconstructed. Like offshore wind, traditional green energy has also welcomed clearer policy benefits; however, due to ongoing pressures on the fundamentals of traditional green energy, we are more bullish on pricing trends improving for green energy. Moreover, the valuation system for green energy is chaotic, with the slope of the PB-ROE curve nearly approaching zero in 2023, meaning that regardless of ROE levels, similar PBs are assigned, indicating a strong expectation for the reconstruction of the valuation system behind this dislocation.

The coal-fired power market has seen fluctuations over the past three years, leading to three strategic responses. A review of the past three years of the coal-fired power market reveals that each phase of its rally is underpinned by expectations of profit play. In retrospect, the source of excess returns mainly comes from price increases in electricity and declines in coal prices, leading to improvements in short-term performance, while corrections are generally caused by coal price declines not meeting expectations or lower electricity generation leading to profit contractions. Currently, it is difficult to establish a long-term pricing logic for coal-fired power, particularly highlighted by the release of electricity pricing for coal-fired capacity in November 2023, yet the market did not respond in the short term. Based on this discovery, we attempt to propose three strategies to grasp the coal-fired power market.

1. The performance expectations for coal-fired power in the medium to short term are still the main pricing logic in the market: looking ahead to the fourth quarter of this year, if electricity prices for 2025 contracts meet market expectations, it could trigger a new round of coal-fired power rallies. 2. Long-termism requires selecting optimal patterns: for example, tighter supply and demand in the Yangtze River Delta lead to higher electricity prices and stronger profitability. 3. Electricity price pre-empting could lead to some profit elasticity with future coal price changes, possibly catalyzing in Q2 2025: with electricity prices relatively confirmed and market coal prices on the decline, companies with low long-term coal contract ratios and high market coal ratios may release greater performance elasticity.

Water and nuclear power focus more on a top-down narrative. As stable assets, future performance outlooks are expected to remain steady, with hydropower and nuclear power more likely to reflect top-down logic. The continuous increase in the stock price of the Yangtze Power Company this year is behind the ongoing fermentation of denominator-end logic, with hydropower being the main catalyst this year. The rationale for hydropower may still need to be assessed based on whether the economy reverses or long-term interest rates continue to decline. Similarly, nuclear power serves as a defensive asset, and its clear growth potential is one of the important foundations for valuation expansion. Whether the water and nuclear market can continue may relate more to style.

Investment recommendations. 1. Bullish on the reconstruction of green electricity valuation order. Strongly recommend zhongmin energy and fujian funeng, offshore wind operators in Fujian; suggest paying attention to other provincial offshore wind platforms such as shenergy, jiangsu new energy development, zhejiang new energy, and china suntien green energy corporation. Traditional green power operators that combine profitability and valuation, recommend focusing on nyocor, china three gorges renewable energy, ningxia jiaze renewables corporation, and cecep wind-power corporation. 2. Three strategies for coal-fired power. Performance expectations in the medium to short term remain the main pricing logic in the market; it is recommended to focus on state-owned enterprises such as huadian power international corporation and huaneng power international, inc.; long-termism can select optimal patterns, recommended to focus on an hui wenergy, zhejiang zheneng electric power, shenergy, etc.; with electricity price preempting, if coal price changes may lead to unexpected profit releases, catalytic points could be in Q2 2025, focus on companies with high market coal ratios such as zhejiang zheneng electric power. 3. For hydropower and nuclear power, focus on a top-down narrative. For hydropower, suggest focusing on china yangtze power, huaneng lancang river hydropower inc., and sichuan chuantou energy; for nuclear power, suggest focusing on china national nuclear power and cgn power co.,ltd.

Risk warnings: 1. Policies in the green energy industry may not progress as expected, risks related to consumption and electricity prices; 2. Increases in coal prices for coal-fired power, declines in electricity prices, and electricity consumption not meeting expectations; 3. Water disruptions for hydropower, safety incidents in nuclear power, interest rates rising.