Rating: OUTPERFORM (maintain)
With lower costs and rising electricity prices, thermal power companies’ profitability could improve. Coupled with the revaluation of power plant assets, we believe valuations of thermal power companies could increase. We favor Huaneng Power (600011 CH, BUY), Huadian Power (600027 CH, BUY), Jilin Electric Power (000875 CH, BUY) and China Resources Power (0836 HK, BUY).
Rerating opportunities in new energy sector; high upside potential
China’s power generation market is currently coal-based. To reduce the energy burden, we believe the only way is to increase the proportion of renewable energy generation and reduce that of coal-fired generation. We predict that to meet China’s carbon peak target, CAGRs in wind power and photovoltaic (PV) installed capacity would have to reach 9% and 15% respectively over 2020-30, with cumulative wind and PV installed capacity CAGRs at 6% and 9% respectively over 2020-50.
Major power generation companies are taking strides toward new energy. Compared with pure new energy operators, valuations of companies that have both thermal power and new energy installed capacity have much growth headroom, in our view. According to our calculations on the installed capacity and market value of pure new energy operators, the following six companies’ new energy business are relatively higher than their current market values by these amounts/representing the following shortfalls: Jilin Electric Power (RMB27.3bn/158.5%), China Resources Power Holdings (RMB23.1bn/38.2%), Huaneng Power International (RMB18.3bn/29.0%), Huadian Power International (RMB4.8bn/ 14.6%), GD Power Development (RMB2.9bn/6.1%) and Datang International Power Generation (-RMB1.7bn/-3.4%). These companies also hold relatively high thermal power assets, so we see much revaluation upside potential.
Policies to ensure supply would gradually lead to cuts in coal prices
Price uptrend: Since the beginning of the year, China’s coal prices have risen sharply, mainly due to the imbalance between supply and demand. As of 13 Aug, the closing price of Qinhuangdao Port coal power (5500K) came to RMB942/ton, up 71.0% yoy. The thermal coal futures settlement price (active contract) is RMB770/ton, up 34.7% yoy.
Weak supply: The yoy growth rate of China's raw coal production from March to June was significantly lower than in previous years. China's coal and lignite imports in 5M21 were 25.3% lower than in 5M20. With favorable economic conditions and higher temperatures, China's electricity consumption continues to increase. Along with a marginal decline in hydropower, demand for thermal power has increased. Thermal power generation in 1H21 came to 2.8tr kWh, with a CGR of 7.4% yoy over 1H19-21. Currently, the peak period of coal consumption is coming to an end, and demand for coal is showing a downward trend. The National Development and Reform Commission and other bodies have issued the "Notice on Implementing Nuclear Increased Capacity Replacement Commitments to Accelerate the Release of High-Quality Capacity" and other policies to ensure supply. In the future, with the gradual implementation of policies that guarantee supply with successive releases of coal production capacity, the coal supply and demand balance would improve and this would gradually drive down coal prices, in our view.
Tight power supply and demand has kept electricity prices steady
China’s electricity prices are lower than those in other countries, with room for increases. In 2019, the average sales price of electricity in China was RMB0.611/kWh, about 59%, 80% and 83% of prices in OECD countries, newly industrialized countries and the US respectively.
Supply: the pace of total power generation investment has slowed, with the new energy expansion making it difficult to ensure total effective supply.
Demand: electricity consumption has continued to grow in recent years. China’s electricity consumption CGR is likely to reach 5.5% over 2020-25E and 3.4% over 2020-35E. So, there is a lot of room for improvement. With advancement of electricity market reforms and improvement of electricity commodity attributes, electricity supply is tightening vs demand, implying room for rising electricity prices.
Currently, electricity prices in many places have increased. In August 2021, the average transaction price of power plants in Yunnan Province increased 9.38% yoy, and that in Inner Mongolia increased 30.50% yoy. The bid spread in Guangdong Province has narrowed significantly from previous years. In August, it is -2.5%/kWh, vs -130%/kWh in 2020. Amid the tight supply and demand balance, the Ningxia Development and Reform Commission issued a notice to limit the monthly trading price of coal power to rise no more than 10% vs the benchmark price. Inner Mongolia also issued a notice in August such that Western Inner Mongolia Electric Power coal-fired electricity trading market transaction prices vs the reference price can go up no more than 10%.
Valuation and risks
We believe that there is plenty of room for the rerating of new energy assets, while the fundamentals of the thermal power business have reached an inflection point. The renewable energy business has yet to mature and thermal power still accounts for a high proportion of China’s current installed power generation capacity. Therefore, the replacement of thermal power with wind and solar is not feasible in the short term, in our view, so installed capacity for thermal power remains necessary. With lower costs and rising electricity prices, thermal power companies’ profitability could improve. Coupled with the revaluation of power plant assets, we believe the valuations of thermal power companies could increase. We favor Huaneng Power International (600011 CH, BUY), Huadian Power International Corporation (600027 CH, BUY), Jilin Electric Power (000875 CH, BUY) and China Resources Power Holdings (00836 HK, BUY).
Other stocks (not rated): GD Power Development and Datang International Power Generation.
Risks include: sharp decline in macro-economic conditions; policy effects falling below expectations; electricity price slump; and a sharp rise in coal prices.
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評級：強於大盤(維持)
隨着成本的降低和電價的上漲，火電公司的盈利能力可能會提高。再加上電廠資產的重估，我們認為火電企業的估值可能會上升。我們青睞華能電力(600011 CH，買入)、華電電力(600027 CH，買入)、吉林電力(000875 CH，買入)和華潤電力(0836HK，買入)。
重新創造新能源行業的機遇；上行潛力很大
中國發電市場目前以燃煤為主。要減輕能源負擔，我們認為唯一的辦法是增加可再生能源發電的比例，減少燃煤發電的比例。我們預測，要實現中國的碳峯值目標，2020-30年風電和光伏裝機容量的複合年均增長率必須分別達到9%和15%，2020-50年累計風電和光伏裝機容量複合年均增長率分別為6%和9%。
各大發電公司正在向新能源邁進。在我們看來，與純粹的新能源運營商相比，同時擁有火電和新能源裝機容量的公司的估值有很大的增長空間。根據我們對純新能源運營商裝機容量和市場價值的計算，以下6家公司的新能源業務相對高於其當前市場價值這些金額/代表以下不足：吉林電力(273億元/158.5)、華潤電力(231億元/38.2%)、華能國際(183億元/29.0%)、華電國際(48億元/14.6%)、廣東電力發展(29億元/6.1%)和大唐這些公司也持有相對較高的熱電能實業，因此我們看到很大的升值潛力。
確保供應的政策將逐步導致煤炭價格下調
價格上漲趨勢：年初以來，中國煤炭價格大幅上漲，主要原因是供需失衡。截至8月13日，秦皇島港煤電(5500K)收盤價為942元/噸，同比上漲71.0%。動力煤期貨結算價(活躍合約)為770元/噸，同比上漲34.7%。
供應疲軟：中國3-6月原煤產量同比增速明顯低於往年。中國5M21的煤炭和褐煤進口量比5M20下降了25.3%。在有利的經濟條件和較高的氣温下，中國的用電量持續增加。隨着水電的小幅下降，對火電的需求也有所增加。2011年第一季度的火力發電量達到2.8萬億千瓦時，與1921年的1h19-21相比，CGR為7.4%。當前，煤炭消費高峯期已近尾聲，煤炭需求呈下降趨勢。發改委等機構發佈《關於落實核增容置換承諾加快釋放優質產能的通知》等政策保障供給。我們認為，未來，隨着保供政策的逐步落實，煤炭產能的陸續釋放，煤炭供需平衡將有所改善，這將逐步壓低煤炭價格。
電力供需緊張使電價保持穩定。
中國的電價低於其他國家，有上調的空間。2019年，我國電力平均銷售價格為0.611元/千瓦時，分別約為OECD國家、新興工業化國家和美國電價的59%、80%和83%。
供應：發電總投資增速放緩，新能源擴張使總有效供給難以保證。
需求：近年來，用電量持續增長。2020-25E中國用電量CGR可能達到5.5%，2020-35E用電量CGR可能達到3.4%。因此，有很大的改進空間。隨着電力市場化改革的推進和電力商品屬性的提高，電力供需趨緊，電價仍有上漲空間。
目前，許多地方的電價都有所上漲。2021年8月，雲南省電廠成交均價同比上漲9.38%，內蒙古電廠成交均價同比上漲30.50%。廣東省的投標價差較前幾年明顯收窄。8月份為-2.5%/千瓦時，而2020年為-130%/千瓦時。在供需平衡偏緊的情況下，寧夏發改委下發通知，限制煤電月度交易價格較基準價漲幅不超過10%。內蒙古也在8月份發佈了通知，規定內蒙古西部電力燃煤電力交易市場交易價格相對於參考價的漲幅不能超過10%。
估值和風險
We believe that there is plenty of room for the rerating of new energy assets, while the fundamentals of the thermal power business have reached an inflection point. The renewable energy business has yet to mature and thermal power still accounts for a high proportion of China’s current installed power generation capacity. Therefore, the replacement of thermal power with wind and solar is not feasible in the short term, in our view, so installed capacity for thermal power remains necessary. With lower costs and rising electricity prices, thermal power companies’ profitability could improve. Coupled with the revaluation of power plant assets, we believe the valuations of thermal power companies could increase. We favor Huaneng Power International (600011 CH, BUY), Huadian Power International Corporation (600027 CH, BUY), Jilin Electric Power (000875 CH, BUY) and China Resources Power Holdings (00836 HK, BUY).
Other stocks (not rated): GD Power Development and Datang International Power Generation.
Risks include: sharp decline in macro-economic conditions; policy effects falling below expectations; electricity price slump; and a sharp rise in coal prices.
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