Power industry: sprinting energy conservation and emission reduction

In August, the monthly electricity consumption increased by 14.4% year-on-year, which was an increase of 1.7% from July. However, the trends in the use of electricity in sub-industries have changed. Under the influence of high-temperature weather, the electricity consumption of the tertiary industry and residents experienced a significant monthly increase. However, in late August, local governments began sprinting the “Eleventh Five-Year Plan” energy-saving emission reduction tasks to limit the use of electricity in high energy-consuming industries. The electricity consumption of the secondary industry in August decreased by 2.6% from July.

In September, the task of sprinting energy-saving emission reduction targets in various localities remains arduous, and the restrictions on electricity consumption for high-energy-consuming industries will continue. It is expected that the growth rate of electricity consumption will decrease significantly, and it will remain flat or slightly lower than the previous month. The decline in energy demand will continue to be transmitted to the upstream coal industry, and the coal supply and demand atmosphere will remain loose.

Regional electricity price adjustment by region is expected to strengthen

Recently, the market expects Shanxi, Hebei, Shandong and other places will slightly increase the on-grid tariff. This expectation is in line with our previous judgments. Coal prices in Shanxi, Hebei, and Shandong have increased significantly, which exceeds the scope of the power generation companies. In the first half of the year, thermal power companies in the region generally suffered poor profits or losses. Raising the on-grid tariff will reduce the losses of thermal power companies and hopefully it will reach a break-even point. However, we believe that the adjustment of the on-grid tariffs in the subregion can help the thermal power industry to bottom out, but the sustained recovery is still more dependent on the continuous fall in coal prices. Due to the impact of effective supply, coal is still maintained at the high point of the economy, so the prosperity of the thermal power industry has bottomed out, but the recovery is still not obvious.

In the third quarter, the situation of hydropower in the southwest was obviously improved, and it is expected that the companies such as Wuyuan Power, Wenshan Power, and Guiguan Power will perform better. At the same time, we are optimistic about the profit prospects of hydropower companies with seasonal adjustment capabilities in the fourth quarter.

Active asset integration

From August to September, the activity of asset integration in the power industry was active. Jiantou Energy, Tongbao Energy and Jiulong Electric Power all announced their asset integration plans. The additional issues of Jingneng Thermal Power, Suihengyun A, Wuyuan Power, Yuedian A and other companies are also moving forward. Asset capital integration will continue to be a hot spot in the power industry.

Combined with the current valuation level, we believe that most of the key companies' valuations are within a reasonable range, maintain a “neutral” industry investment rating, and continue to focus on companies with valuation safety margins and asset consolidation expectations.