The Zhitong Finance App learned that CICC released a research report stating that recently, the Hong Kong stock thermal power company released its 2023 annual report, and the performance was in line with expectations; the industry's core profit and cash flow were significantly restored, ancillary service revenue was realized, and dividend payout rates increased. They are optimistic that coal prices will drop in 2024, and Thermal Power will hit Davis in a double whammy. Furthermore, according to the public performance meeting of power companies, capacity electricity prices were implemented well in January-February 2024. The electricity price compensation was around 2 to 3 points. Combined with the electricity price portion of electricity, thermal power can still maintain a premium of 17-18%, and the year-on-year decline is manageable. On the cost side, 1Q24 thermal coal prices are -20% year-on-year. Looking forward, electricity companies are still expected to drop by about 5% for the whole year, which can cover the decline in electricity prices and drive the continued increase in thermal power profits throughout the year.
The main views of CICC are as follows:
In 2023, thermal power core electricity profits have recovered to an average of about 1.3%, peaking in the third quarter
According to CICC estimates, Huaneng International (00902)'s adjusted profit before electricity tax was 8%, Huadian International (01071) and China Electric Power (02380) were 1.3%/2.9%, and Datang Power lost 1%. The decline in unit fuel costs has driven profit recovery. The general decline was 10% to 13% (-24% year on year), Datang power generation was 8%, and Changxie coal accounted for more than 70%. In addition, the revenue side price has risen steadily, and the supply of thermal power is guaranteed. Huaneng International/China Electric Power uses +4%/+12% over the same period of time to 4,388/5,246 hours, and Huadian International has put into production a lot of coal power. In 2023, the depreciation of fixed assets of electric companies was 0.2 to 2.55 billion yuan, accounting for 0 to 2.2% of net assets; interest on perpetual bonds was concentrated at 300 to 2.9 billion yuan, accounting for 3% to 35% of net profit attributable to mother.
Coal consumption showed a year-on-year increase, and ancillary services gradually reflected net income
In 2023, Huaneng International/Huadian International's electricity and coal consumption was +1.5%/+0.8%, respectively. This is due to the increase in the frequency of flexible regulation of new energy sources due to high coal consumption units in Yunnan and Sichuan after the incoming water dried up. In 2023, ancillary services accounted for 0.7%-1.1% of electricity companies' revenue. Among them, Huaneng International accounted for the highest share, with a net revenue of 2.72 billion yuan. Electric companies actively adjust power generation strategies, make full use of the advantages of new energy thermal power joint ventures, and broaden additional revenue channels such as auxiliary services.
Thermal power's cash flow has picked up significantly, and the level of dividends is still being actively raised under capital expenditure pressure
With the exception of Datang Power Generation, power companies' operating cash flow was +23% to 73% year-on-year. Huadian International's free cash flow was back to 2.8 billion yuan due to lack of scenic construction tasks. In 2023, the interest rate of electricity companies was between 44% and 62%. China Electric Power increased by 10ppt over the same period last year. Huaneng International paid dividends for the first time after reversing losses, and Datang Power still actively paid dividends despite losses. In 2024, CICC determined that the capital expenditure of electric companies was between 30 and 80 billion yuan, seeking balance between development and dividends.
risks
Electricity prices have declined more than expected, and the hourly usage of thermal power has declined markedly.