A recent utilities industry study indicates that due to declining market-based electricity prices and fluctuations in power generation, the sector's revenue for 2025 is projected at 1.87 trillion yuan, representing a year-on-year decrease of 2.4%. Within this, thermal power revenue fell by 3.6%, while green power revenue declined by 7.8%. Regarding profitability, green power faced significant pressure, whereas thermal and hydro power continued to show improvement. The sector's overall net profit for 2025 reached 137.1 billion yuan, a slight increase of 0.9% year-on-year. Specifically, thermal power profits grew by 11.1%, hydro power surged by 42.5%, but green power profits dropped by 20.8%.
Key findings from the analysis of 46 companies that had disclosed their 2025 annual reports by April 5, 2026, include: 1. The sector's operating cash flow net amount was 374.4 billion yuan, up 23.4% year-on-year, with green power cash flow increasing 47.0%, largely influenced by subsidy distributions. Benefiting from profit improvements, thermal and hydro power cash flows both rose by over 30%. 2. The net investment cash flow was an outflow of 274.1 billion yuan, a reduction of 31.9% in scale, primarily due to decreased investment expenditures in green power. 3. With improved profitability and slower investment spending, the sector's free cash flow turned positive, reaching 38 billion yuan. 4. The sector's gearing ratio, including perpetual bonds, slightly decreased to 65.2% by the end of 2025. The real net asset attributable to owners, after deducting perpetual bonds, grew by 4.7% compared to the end of 2024, indicating ongoing balance sheet repair.
The analysis presents a three-dimensional framework for tracking the coal and power sectors: 1. Electricity price increases under energy inflation: Focus on the sustainability of rising coal prices and the inflection point for upward electricity prices, which could help these sectors escape deflation. 2. Timing clues in profit realization: Monitor the profit growth rhythm of sub-sectors, including coal which began seeing price increases early in the year, thermal power whose first-quarter reports revised pessimistic expectations, hydro power benefiting from improved hydrological conditions during the flood season, and green/nuclear power potentially bottoming out and recovering in the second half. 3. Thematic trends under low allocation and undervaluation: Fund holdings in utilities and coal sectors declined significantly in the third and fourth quarters of last year. The power sector has also seen thematic trends like computing-power integration. Energy security is viewed as a potential new main theme, highlighting the value of coal and power as safe-haven assets during turbulence.
The tracking system involves monitoring: - Volume: The sustainability of high growth in electricity consumption and coal-power generation year-to-date against a low base, coal inventory data, and progress in hydrological improvements. - Price: Coal prices, monthly and spot electricity prices, and green certificate prices. - Valuation: Fund holdings, trading volume/value crowding, and changes in profits and expected dividend yields.
It is emphasized that most leading companies in coal and power have a dividend foundation. Evaluation should consider both the reversal of profit expectations based on fundamental improvements and opportunities from thematic trends, such as computing-power integration and energy security.
Amid ongoing external geopolitical instability, the investment value of energy assets is assessed from both the numerator (profits) and denominator (valuation) perspectives: 1. Numerator Side: A low base effect from suppressed demand in energy-intensive manufacturing last year may lead to improved demand for coal and power. Additionally, improved domestic manufacturing demand, indicated by rising PMI and a 19.2% year-on-year increase in export value for January-February, could further expand energy demand. Coal consumption and electricity usage are expected to rise, potentially transmitting to prices like coal and electricity tariffs. 2. Denominator Side: The market has not fully priced in the safety value of domestic coal and power assets. Geopolitical disruptions may lead to a fuller valuation reflection of these assets' ongoing operational capability. Coupled with a persistent low-interest-rate environment, the interest rate spread for coal and power assets has expanded compared to before, offering further potential for valuation upside.
In conclusion, coal has already been incorporated into the energy security framework, with subsequent tracking needed on the transmission of volume and price changes into profits. It is crucial to note that the power sector is essentially a high-quality domestic processing and manufacturing industry. Previously pessimistic expectations regarding loose supply and demand may be due for a reassessment. Strengthening the evaluation of energy assets like coal and power from both numerator and denominator sides is recommended, focusing on the market performance of the energy security theme.
Related investment targets, categorized by timeline and events, include: - Timeline - Current Coal: Yankuang Energy, Yancoal Australia, China Shenhua Energy, Shaanxi Coal Industry. - First-Quarter Thermal Power Reports: Shenergy Company, Huaneng Power International, China Power International Development, Gansu Energy, Inner Mongolia Huadian Electric Power. - Flood Season Hydro Power: SDIC Power Holdings, China Yangtze Power. - Subsequent Nuclear and Green Power: China General Nuclear Power, China National Nuclear Power, Longyuan Power, Funeng Company. - Event Line - Central/State-Owned Enterprise Market Value Management and Capital Operations: Related targets include Sichuan Chuantou Energy, Huadian Power International.
Risk warnings include coal price fluctuations exceeding expectations, green power capacity installation and utilization falling short of forecasts, and delays in the introduction of power system reform policies.
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