Guosheng Securities: The overall performance of the power sector meets expectations, and future regional differentiation will be further highlighted.

Guosheng Securities released a research report stating that the mid-year report for the power industry in 2025 has been released. Thermal power is experiencing a decrease in revenue but an increase in profits, while hydropower is stable with some growth. Renewable energy is facing pressure, but the overall performance of the power sector is in line with expectations. Looking ahead, current electricity prices are expected to bottom out and rebound, with future electricity demand recovering accordingly. Fuel costs continue to decline, and regional differentiation will become more apparent. The report recommends focusing on Huadian Power International Corporation, Huaneng Power International, Inc., China Suntien Green Energy Corporation, China Longyuan Power Group Corporation, among others. Key points from Guosheng Securities: Performance overview: Thermal power is experiencing a decrease in revenue but an increase in profits, while hydropower is stable with some growth. Renewable energy is facing pressure. In the first half of 2025, listed companies in the power sector (SW) achieved a total operating income of 911.6 billion yuan, a year-on-year decrease of 1.54%; and a net profit attributable to the parent company of 102.7 billion yuan, a year-on-year increase of 3.44%. In the first half of 2025, the performance of thermal power was stable, with cost reductions supporting profitability, achieving a total operating income of 572.6 billion yuan, a decrease of 3.70% year-on-year, and a net profit attributable to the parent company of 44.1 billion yuan, a year-on-year increase of 6.31%. Hydropower prices are less affected, with stable performance and a total operating income of 87.9 billion yuan, an increase of 4.69% year-on-year; achieving a total net profit attributable to the parent company of 26.2 billion yuan, an increase of 10.70% year-on-year. In the first half of the year, new energy generation (including nuclear power) saw rapid growth in installed capacity, exacerbating issues in consumption, impacting market prices, and relatively facing pressure on performance, achieving a total operating income of 153 billion yuan, a decrease of 2.18% year-on-year; and a total net profit attributable to the parent company of 25.1 billion yuan, a decrease of 6.42% year-on-year. (1) Thermal power: Since the beginning of the year, coal prices have fallen significantly, offsetting the pressure from declining volume and prices. While overall electric prices are under pressure and falling due to regional differentiation, the upcoming adjustment of capacity electric prices in 2026 is expected to improve the profitability of thermal power companies. The investment focus is on: 1) high-quality assets with stable expected electricity prices; 2) Guangdong's long-term electricity price bottoming out and the expected further increase in capacity electricity prices assisting in the profit recovery of thermal power companies; 3) high-quality assets with clear transformation demands and high dividend yields. (2) Hydropower/nuclear power: The potential of dividend assets is becoming more apparent, grasping long-term investment value. Interest expenses for hydropower companies continue to decline, with power plant units gradually reaching the end of their depreciation period, expected to continue releasing profit space. Nuclear power supply and demand boost, with nuclear unit approvals entering normalization, and investments and technology in nuclear fusion accelerating significantly, commercialization expectations. (3) Renewable energy policy bottoming out, left-side layout. The comprehensive promotion of new energy trading in the market is expected to further intensify the consumption issues in the second half of the year after rapid growth in installed capacity in the first half of the year, impacting market prices. The direct connection of green energy, promotion of green certificates, and continued catalyzation of green energy consumption are expected to realize environmental value. It is recommended to select wind power operators that are improving, with stable expected electricity prices, and also pay attention to undervalued Hong Kong-listed green energy operators. Recommendations: Key thermal power targets: Huadian Power International Corporation (A+H), Huaneng Power International, Inc. (A+H), Guangdong Baolihua New Energy Stock, Guangzhou Development Group Incorporated, GD Power Development. Recommend focusing on undervalued green energy sector; give priority to undervalued Hong Kong-listed green energy and wind power operators. Pay attention to China Suntien Green Energy Corporation (A+H), China Longyuan Power Group Corporation (A+H), Zhongmin Energy, DATANG RENEW. Grasp hydropower and nuclear defense. For the hydropower sector, pay attention to China Yangtze Power, SDIC Power Holdings, Sichuan Chuantou Energy, Huaneng Lancang River Hydropower Inc.; For the nuclear power sector, pay attention to China National Nuclear Power and CGN Power Co.,Ltd. Risk warning: Unexpected rise in raw material prices; project construction progress slower than expected; policies such as electricity auxiliary service markets, green certificate trading, etc., falling short of expectations.