The Zhitong Finance App learned that Guotai Junan released a research report saying that 1Q24 thermal power and transformation sector performance continued to recover, new energy performance was divided, and hydropower and nuclear power grew steadily. The current stage of maximum flexibility in profit repair has passed. It is expected that 2Q24E Thermal Power's profit will remain at a good level, but profits are divided among different companies, with companies with excellent asset quality predominate. The performance growth of major hydropower companies in 1Q24 mainly benefited from cost savings and increased return on investment. Considering the low base for the same period last year, 2Q24E hydropower generation is expected to improve year-on-year. In addition, the performance of nuclear power companies grew steadily in 2023 and 1Q24. It is expected that with the approval, commencement of nuclear power, and the orderly development of nuclear power, industry profits are expected to continue to grow steadily.

Guotai Junan's main views are as follows:

1Q24 thermal power and transformation sector performance continues to recover

The gross profit margin of the 1Q24 thermal power and transformation sector was 13.7%, +3.9/+2.5ppts year over year; net profit margin was 7.8%, +3.9/+9.2 ppts year over month. The total revenue of 1Q24 was 301.6 billion yuan, +2.7%/-1.3% year over year; total net profit to mother was 17.8 billion yuan, +103.4% year over month, reversing losses. Of the 24 sample companies, 20 companies, including Huaneng International and Huadian International, improved month-on-month; only 4 companies, Jinkong Electric Power, Yuneng Holdings, Tongbao Energy, and Bao New Energy, deteriorated month-on-month. Guotai Junan believes that the current stage of maximum profit recovery flexibility has passed. It is expected that 2Q24E Thermal Power's profit will remain at a good level, but there are differences in profits among different companies. Among them, companies with excellent asset quality dominate.

New energy performance is divided, and hydropower and nuclear power are growing steadily

In 2023, the total net profit of the NEV sample company was 22.2 billion yuan, +7.0% YoY (total net profit of 15.97 billion yuan after excluding Longyuan Electric Power, +2.0% YoY); the total net profit of the 1Q24 NEV sample company was 7.88 billion yuan, +2.1% YoY, and the performance of different companies was differentiated. Guotai Junan anticipates that the performance differentiation of NEV sample companies will continue in 2024. The difference in profit growth is mainly related to factors such as NEV project regions and the proportion of installed landscape structures. The performance growth of major hydropower companies in 1Q24 mainly benefited from cost savings and increased return on investment. Considering the low base for the same period last year, Guotai Junan expects 2Q24E hydropower generation to improve year over year. The performance of nuclear power companies grew steadily in 2023 and 1Q24. Guotai Junan expects industry profits to continue to grow steadily with the approval, commencement, and commissioning of nuclear power in an orderly manner.

1Q24 utility fund position level increased month-on-month

By the end of 1Q24, utilities (electricity, heat, gas and water production and supply) increased to 2.34% of the total market value of fund stock investments, up to +0.70 ppts over the previous month. By fund category, as of the end of 1Q24, the top ten holding fund products in the industry were mainly passive index funds; Cathay Junan estimated that passive funds (passive index and enhanced index funds) /active funds (excluding remaining funds without passive funds) accounted for 0.96%/1.38% of the total market value of fund stock investment, +0.29/+0.41 ppts. By the end of 1Q24, utility fund holdings had a low allocation of 1.80 ppts, and the low allocation ratio had narrowed by 0.33 ppts month-on-month, higher than the historical average (since 2016, the average low allocation of fund holdings for utilities was 2.0 ppts).

Investment advice

Maintain the “gain” rating and grasp the dual main lines of growth and value during the energy transition opportunity period. (1) Thermal power: the direction of the cycle is more important than elasticity. We recommend Guodian Electric Power (600795.SH) and Huadian International (600027.SH); (2) Hydropower: grasp the value attributes of large hydropower, recommend Changjiang Electric Power (600900.SH) and Sichuan Investment (); (3) Nuclear power: open up room for long-term growth, and long-term implied returns are worth paying attention to. Recommended CGN Power (01816), China Nuclear Power (DAB); (4) New Energy: Select high-growth endogenous stocks, and recommend Yunnan Energy (DAB). 600674.SH 601985.SH 002053.SZ)

Risk factors: Electricity demand falls short of expectations, new energy installation progress falls short of expectations, coal price increases beyond expectations, electricity prices in the market fall short of expectations, etc.