In 2023, the electricity consumption of the whole society will reach 9.22 trillion kWh, an increase of 576.4 billion kWh over 2022, a year-on-year increase of 6.7%.
Although green power such as photovoltaic and wind power is being installed non-stop, it is still helpless in the face of rapid growth in electricity consumption.
What's more, green power also faces a series of problems such as unstable power generation, high power storage costs, and loss in the transmission process, resulting in thermal power generation still accounting for more than 70% of the total power generation.
With the cyclical changes of thermal power generation, the annual report performance of Huaneng International, Datang Power Generation, Huadian International and other enterprises has turned losses into profits significantly, and the industry has reached a turning point.
Why did power companies start to turn losses into profits on a large scale?
Thermal power generation, it is a typical cyclical industry, why do you say that?
The downstream of thermal power is the electricity at the sales end, but the price of electricity in the mainland is related to the national economy and people's livelihood, so the price elasticity is very small, and the upstream fuel of thermal power is mainly coal.
The terminal electricity price remains unchanged, and the cyclical changes in coal prices determine the profitability of the entire thermal power industry.
From the perspective of coal prices, since 2020, due to the impact of three-year factors and the European energy crisis in 2022, coal prices have begun to rise wildly.
In 2020, the price of thermal coal was around 500 yuan/ton, after May 2021, the price soared to nearly 1,000 yuan/ton, and in 2022, it reached 1,600 yuan/ton, quadrupling from 2020 and remained high throughout the year.
The emergence of "coal super-crazy" has led to a surge in the cost of thermal power enterprises, and the net profit margin has directly turned negative, and most enterprises have fallen into a state of loss.
Taking Huaneng International as an example, Huaneng International's net profit in 2020 was 4.565 billion yuan, but due to the rapid rise in costs, it lost 10 billion yuan and 7.4 billion yuan in 2021 and 2022, respectively, which is enough to see the important impact of coal prices on the profitability of thermal power enterprises.
In 2023, coal prices will finally fall sharply as the effect of increasing coal production in mainland China has begun to show results, foreign coal imports have increased, and inventories have accumulated to a relatively high level.
According to the statistics of the China Coal Industry Association, the average spot price of thermal coal was 974 yuan/ton, a year-on-year decrease of 25.4%.
Based on this situation, the performance of coal companies began to improve rapidly and began to turn losses into profits, taking the top few listed thermal power companies that released annual reports as examples.
Datang Power achieved an operating income of 122.4 billion yuan, a year-on-year increase of 4.77%, and a net profit attributable to the parent company of 1.365 billion yuan, a year-on-year increase of 434.81%.
Huadian International's operating income was 117.2 billion yuan, a year-on-year increase of 9.45%, and the net profit attributable to the parent company was 4.522 billion yuan, an increase of nearly 38 times year-on-year.
In 2023, Huaneng International will achieve operating income of 254.4 billion yuan, a year-on-year increase of 3.11%, and net profit attributable to the parent company of 8.446 billion yuan, a year-on-year increase of 214.33%.
What is the next growth logic of the thermal power industry?
In the short term, in addition to power generation, the demand for coal is also a big demand for steelmaking, but this demand is shrinking rapidly.
As the real estate market is deserted, real estate investment has gradually declined. According to the data, from January to February 2024, the construction area of real estate development enterprises was 666902 million square meters, a year-on-year decrease of 11%.
Among them, the residential construction area was 466636 million square meters, a decrease of 11.4%. The area of new housing construction was 94.29 million square meters, down by 29.7%.
The decline in real estate starts has led to a decline in steel demand, and corporate inventories have begun to climb rapidly. From the chart above, we can see that the inventory of rebar enterprises will rise rapidly in 2024 and remain at a high level.
The steel industry is declining, and the demand for coal will remain weak for a long time, so that coal prices will remain relatively low.
However, for thermal power companies, the time is about to enter the summer, the demand for refrigeration will lead to the society into the peak period of electricity consumption, in the case of coal prices remain stable, the rise in power generation will bring more profits to the enterprises, which will be reflected in the semi-annual report and the third quarterly report.
In the long run, over the years, the mainland's industrial and residential electricity consumption has maintained growth, and the electricity consumption of the whole society has repeatedly reached new highs.
In 2023, the growth rate of domestic electricity consumption will rise, and the electricity consumption of emerging industries will maintain a growth momentum.
The electricity consumption of the whole society reached 9.22 trillion kWh, an increase of 576.4 billion kWh over 2022, a year-on-year increase of 6.7%, an increase of 3.1 percentage points over the previous year, and the per capita electricity consumption reached 6,539 kWh, a record high.
The electricity consumption of the high-tech and equipment manufacturing industry increased by 11.3% year-on-year, exceeding the overall growth level of the manufacturing industry by 3.9 percentage points.
Although the installed capacity of photovoltaic and wind power is growing rapidly, these power sources are far less stable than thermal power generation, and the growing total electricity consumption also plays a sufficient supporting role for thermal power generation.
What is the industrial chain of thermal power generation, and where are the investment opportunities?
The industrial chain of thermal power generation covers multiple links and can be divided into upstream, midstream and downstream.
The upstream is mainly the supply of raw materials and the production and supply of related equipment. This includes the production and supply of fuels such as coal, oil, and natural gas, as well as supporting facilities such as power generation equipment, power grid equipment, automation equipment, and power equipment.
These companies include Shanghai Electric, Dongfang Electric, Shuangliang Energy Conservation, Yankuang Energy, etc.
The midstream is the thermal power industry itself, including thermal power plants and power generation enterprises of all sizes.
These companies mainly include Huaneng International, Huadian International, Datang Power Generation, Inner Mongolia Huadian, Guangdong Electric Power A, and the strongest is Huaneng International.
Huaneng International is one of the largest listed power generation companies in China, and is one of the largest listed power generation companies in China.
In 2022, the company has an installed capacity of 127.23GW of controllable power generation, of which 94.06GW is coal-fired power, ranking first among A-shares, and 33.17GW of clean energy, accounting for 26.07%.
Recently, the company disclosed its 2023 annual report, the company achieved revenue of 254.397 billion yuan, a year-on-year increase of 3.11%, and a net profit attributable to the parent company of 8.446 billion yuan, a year-on-year increase of 214%.
The company's turnaround in 2023 was mainly due to the year-on-year decrease in fuel costs and year-on-year growth in electricity in domestic operations, as well as a significant year-on-year increase in profit from the company's Singapore business.
What's more eye-catching is that Huaneng International is a very atmospheric enterprise, and the dividend ratio has always ranked first in the industry.
In the "2020-2022 Shareholder Return Plan", Huadian International promised that the company's annual profit to be distributed in cash should not be less than 50% of the distributable profit of the consolidated statement realized in the current year, and the dividend per share should not be less than RMB 0.2.
The downstream is mainly the circulation and application links of power grid companies and consumers.
The power grid company is responsible for the transmission and distribution of electric energy, and transmits electricity to thousands of households and various enterprises to meet people's daily life and industrial production needs.
In general, the thermal power industry chain is a closely connected and interdependent system. Coordination and cooperation between various links are essential to ensure the stable operation of thermal power generation and meet power demand.
The above analysis does not constitute specific investment advice. The stock market is risky, and investors need to be cautious.
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Source: Flying Whale Investment Research