Core view
The disturbance factors are constant, and the sector fluctuates sharply. Affected by multiple factors, China’s energy supply and demand has been tight since the third quarter of 2021, coal prices have risen sharply, and “power cut-off and power rationing” have appeared one after another in various places
Phenomenon; Since this year, under the joint influence of multiple factors such as the repeated covid-19 epidemic, the shift of monetary policies of major economies and the intensification of geographical conflicts between Russia and Ukraine, China’s energy supply has shown new pressure.
The sector fluctuates greatly under the disturbance factors. However, in the long run, under the “trio” of supply, demand and price, the power industry still has great room for development.
Thermal power sector: high costs lead to losses, and the reversal of performance ushers in the dawn. The positioning of thermal power is gradually clear. In the short term, it is still the main source of power in China and has its special value at the supply end; In the long run, it will gradually complete the transformation from the main power supply to the basic guarantee and system regulation power supply that provides reliable capacity, peak shaving, frequency modulation and other auxiliary services. Recently, thermal power development support policies have been continuously. Under the background of strong regulation of coal prices, thermal power enterprises are expected to end losses and reverse; At the same time, the installed capacity of clean energy in thermal power enterprises is growing rapidly, and thermal power enterprises are expected to accelerate the transformation of comprehensive energy suppliers.
Hydropower Sector: stable cash flow and improved margin of incoming water. Affected by the small amount of water, the revenue growth rate, gross profit margin, net profit attributable to parent company, rate of return and operating cash flow of hydropower sector decreased to varying degrees in 2021. From the data of the first quarter of 2022, the water inflow is relatively abundant year-on-year, and the sector data shows marginal improvement. China’s hydropower resources are relatively fully developed, with limited growth space in the future, and the depreciation of cost side assets is relatively stable. Therefore, it is greatly affected by precipitation and water inflow in the basin. However, due to the growing demand for electricity in the whole society and the marginal improvement of hydropower price expected from the market-oriented reform of electricity price, it is necessary to pay attention to the changes in the performance of hydropower sector caused by the increase of water volume and electricity price.
Scenery sector: strong demand and huge space. The revenue of wind power and photovoltaic sector has increased steadily. Although there are still problems of high cost of photovoltaic modules and unequal geographical distribution of resources in the industry in the short term, the obstacles to the development of wind power and photovoltaic are expected to be gradually eliminated under the promotion of the continuous introduction of national policies for new energy construction and consumption support and the continuous progress of industry technology. Under the dual carbon goal, wind power, photovoltaic and other new energy power generation measures are the main means of green energy transformation. The industry has broad space for long-term development, and there are still great development opportunities due to the favorable market-oriented reform of electricity price.
Investment suggestion: the global energy system has ushered in profound changes, and the green and low-carbon transformation of energy has become the consensus of the international community. China has successively issued documents such as the “double carbon” goal and the “14th five year plan” for modern energy system, clarifying the goal of China’s green and low-carbon transformation. In the context of energy transformation, the construction and consumption of renewable energy and the transformation of power system will be the long-term main line. We maintain the “optimistic” investment rating of the industry and continue to be optimistic about the three main investment lines of large hydropower, scenery operators and clean energy transformation. In the short term, thermal power enterprises under the strong policy supervision are expected to usher in a profit reversal. At the same time, affected by the epidemic and geographical conflicts, China’s economic development is facing certain pressure. We need to pay attention to the business conditions of enterprises, and it is suggested to pay attention to power operators with good cash flow. We recommend Huaneng Lancang River Hydropower Inc(600025) , Sichuan Chuantou Energy Co.Ltd(600674) , China Yangtze Power Co.Ltd(600900) , Huaneng Power International Inc(600011) electric power, Datang new energy and other companies.
Risk factors: the epidemic control was not as expected; Economic development is less than expected; The implementation progress of carbon neutralization related policies is less than expected; Coal prices fell less than expected; The decline of new energy installation cost is less than expected.
