ZhaoShang Securities said in a research report that since 2024, the growth rates of the power and gas operating income of the public utilities sector and its sub-sectors have been among the top in the industry, highlighting their defensive properties. However, the environmental protection sector has experienced a relatively large decline. With the rapid growth of new energy installed capacity, the reliable installed capacity growth rate is lower than the peak load growth rate. According to the China Electricity Council, the maximum electricity demand in 2024 will increase by 100 million kilowatts compared with 2023, and the overall national power supply and demand situation during the peak summer period will be tight and balanced, and the pressure of new energy consumption in some areas will be highlighted. Under cost optimization, thermal power performance is expected to further recover; good water storage and improved water supply support the increase of hydropower electricity. In the short term, it is recommended to pay attention to the optimization of the Fujian Haifeng competition and allocation mechanism and the landing of the direct allocation policy; the nuclear power units are put into operation successively, and the increase of electricity drives the performance growth.

The main points of China Merchants Securities are as follows:

Thermal power: coal prices have decreased year-on-year, and performance still has considerable elasticity.

In Q1/Q2/Q3/Q4 2023, the average market price of Qinhuangdao Port's 5500 kcal thermal coal was 1,153.61/934.67/872.93/964.70 yuan/ton, and the average price in Q1 and Q2 of 2024 dropped to 914.24 and 856.87 yuan/ton respectively, a decrease of 20.7% and 8.3% year-on-year.

ZhaoShang Securities pointed out that due to the relatively high coal price base in the same period last year, the performance of thermal power enterprises in the first half of this year is still expected to achieve high growth. At the same time, the degree of downward adjustment of long-term power prices in major provinces in 2024 is limited, and the recovery of capacity electricity fees is expected to further stabilize profits.

Hydropower: the main reservoirs have good water storage, and the improvement of incoming water is expected to support performance growth in 2Q24.

Since the second quarter of 2024, the water storage in some river basins has been restored, and the average daily inflow and outflow of the Three Gorges Reservoir from January to May 2024 were 7,888 and 9,179 cubic meters/second respectively, an increase of 10.1% and 17.9% year-on-year; The average daily water storage is 27.7 billion cubic meters, up 17.2% year-on-year. Since June 1, 2024, the daily average discharge of the Jinping No.1 hydroelectric power station on the Yalong River has increased by more than 150% year-on-year, and the daily average discharge of the Ertan Hydropower Station has also increased significantly year-on-year. The improvement of incoming water is expected to drive a year-on-year increase of 21.0% and 38.6% in national hydropower generation in May and April 2024, respectively, and support the performance growth of hydropower in Q2-Q3 2024.

Green Power: The scale of green power trading continues to expand, and the accelerating refund is expected to improve enterprise cash flow.

From January to April 2024, the scale of green power trading within the province reached 31.71 billion kilowatt-hours, a year-on-year increase of 254.70%, accounting for 9.76% of green power generation, an increase of 6.68pct from the same period last year. The national subsidy recovery process is speeding up, and the profitability of green power companies is expected to increase. In addition, the optimization of the Fujian Haifeng project competition allocation mechanism and the direct allocation policy are expected to be implemented, which will promote the recovery of the Haifeng wind power price to a reasonable range and ensure the profitability of the enterprise.

Nuclear Power: The relative stability of electricity price and cost, the successive commissioning of units, and the increase in electricity drive the growth.

In terms of electricity prices, although the proportion of marketized transactions in nuclear power is continuously increasing, various regions have basically recycling mechanisms for marketized transaction prices, and the settlement price is close to the approved electricity price. Therefore, the nuclear power price is relatively stable. In terms of cost, major nuclear power companies stabilize fuel prices through long-term contracts, and the impact of fluctuations in the natural uranium price is limited. It is expected that in the short term, nuclear power will maintain a relatively high approved amount, and the increase in electricity generation driven by the successive commissioning of units will become the main driving force for the growth of nuclear power performance.

Investment advice:

Thermal power sector: it is recommended to pay attention to state-owned integrated energy leader GD Power Development (600795.SH) with coal and electricity integration, and companies with good asset quality and high management efficiency such as China Res Power (00836).

Hydropower sector: it is recommended to focus on China Yangtze Power (600900.SH), which has industry-leading installed capacity and utilization hours, stable operation performance, high dividend payout ratio and dividend yield. It is also recommended to pay attention to SDIC Power Holdings (600886.SH) and other companies.

Green power sector: the Fujian Haifeng competition allocation policy is expected to be optimized and adjusted, and the direct allocation policy is expected to be implemented, which will be beneficial to the local construction of Haifeng wind power. Recommend Fujian Funeng (600483.SH) and pay attention to Zhongmin Energy (600163.SH) and other companies.

Nuclear power sector: At present, the valuations of nuclear power companies are relatively low. Recommend nuclear power operation oligarch China National Nuclear Power (601985.SH) and CGN Power Co., Ltd. (003816.SZ).

Risk warning: the risk of raw material price fluctuations, safety risks of nuclear power operation, soft terminal electricity demand caused by economic slowdown, and the slow progress of power marketization reform.