Huayuan Securities has issued a research report maintaining a "Buy" rating on China Resources Power (00836). Benefiting from the retreat from high coal prices, the company's thermal power subsidiary achieved robust growth in the first three quarters of 2025. Despite headwinds in 2026 from declining annual electricity prices and the implementation of spot power markets, the company is expected to demonstrate earnings resilience through its "high-load" development strategy, superior operational capabilities, and the commissioning of new energy units. Furthermore, the group's focus on high-quality development during the "16th Five-Year Plan" period, coupled with a potential successful spin-off and listing of its new energy business, could significantly alleviate capital pressure and support its long-term transition. Key views from Huayuan Securities are as follows: The thermal power subsidiary's performance surged in Q3 2025, with the pullback in coal prices from highs laying a solid foundation for full-year profits. Although the company has not disclosed its Q3 report, operational data from its wholly-owned subsidiary, China Resources Power Investment Co., Ltd. (the domestic thermal power platform, accounting for 67% of CR Power's installed capacity at the end of 2024), shows net profit attributable to shareholders grew 31.71% year-on-year for the first three quarters, a significant acceleration from the 3.99% growth in the first half of 2025. The net profit for Q3 alone surged 77.89% year-on-year. This strong performance is primarily attributed to increased power generation, with thermal power sales volume rising 4.7% year-on-year from July to September 2025. With coal prices remaining at relatively low levels for the year, the company's full-year 2025 earnings are anticipated to be stable. Specifically, the average price for 5,500 kcal thermal coal at Qinhuangdao Port in 2025 was 697 yuan/ton, down 158 yuan/ton or 18% year-on-year. The growth in the company's 2025 electricity sales was mainly driven by increased capacity in wind and solar power. By source, electricity sales from thermal, wind, hydro, and solar power were 157.8 TWh, 43.7 TWh, 2.1 TWh, and 13.2 TWh, respectively, representing year-on-year growth of 1.3%, 16.4%, 35.9%, and 55.5%. Wind and solar power were the primary contributors to the sales volume increase, accounting for 51% and 32% of the incremental growth, respectively, likely due to capacity expansion. The gradual finalization of 2026 annual electricity prices, combined with the impact of spot market mechanisms, heralds a year of significant uncertainty. Amid marginally looser power supply and demand and lower coal prices (in 2025), annual electricity prices in many provinces are expected to decline in 2026, with the proportion of annual trading also decreasing substantially. Beyond these typical market factors, the drop in 2026 annual trading prices may also be linked to three atypical elements: 1) increases in capacity电价, 2) the promotion of spot markets, and 3) excessive competition among electricity retailers. The interplay of rational and irrational factors has led to a pessimistic outcome for 2026 annual prices. With limited room for further significant coal price declines in 2026, the shrinking spark spread is likely to pressure thermal power profits. Concurrently, even though existing new energy assets receive considerable protection, their trading prices and curtailment rates will face a major test in the power spot market. The report suggests that the company's historical "high-load" development strategy may provide a relative advantage for its new energy assets entering the market. 2026 is poised to be the most volatile year for the power market, where the company's excellent management mechanisms and operational capabilities will be crucial for navigating the cycle. High-quality newly commissioned units in 2025 are expected to contribute incremental earnings, and the group's "16th Five-Year Plan" may mark the beginning of high-quality development. With a target of 10 GW of new energy capacity installation in 2025 and an expected 7 GW of new equity capacity in coal-fired power, combined with strong management, the new units are anticipated to enhance the company's earnings resilience during an industry downturn. China Resources Group emphasized in its 2026 annual work conference that the "16th Five-Year Plan" period will prioritize higher "quality" alongside continued "quantity" growth, striving for optimal operational performance. The analysis indicates that "quality" may take precedence over "quantity," and the group is expected to continue its market-oriented operating philosophy. The spin-off and listing application for the company's new energy business (on the Shenzhen Stock Exchange Main Board) was accepted in March 2025, followed by an inquiry in April 2025, with financial documents updated in December 2025. The planned IPO aims to raise 24.5 billion yuan to support the group's new energy development. A successful listing could significantly ease the capital expenditure pressure on China Resources Power. Risks include fluctuations in coal prices, changes in subsidy policies, and alterations to market-oriented policies for new energy.
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