The Zhitong Finance App learned that Orient Securities released a research report stating that it is optimistic about the utilities sector. The bank believes: 1) against the backdrop of the restructuring of the global order and the intensification of geopolitical conflicts, China's electricity and natural gas prices are expected to gradually enter a new upward cycle; 2) against the backdrop of declining market risk appetite and domestic risk-free interest rates, utilities, as important defensive physical assets, are expected to attract incremental capital allocation. In 2026, the electricity price compensation ratio for coal and electricity capacity in various provinces in China will continue to rise, and the superposition spot market will be fully rolled out nationwide. Thermal power will gradually shift from baseload power sources to adjustable power sources, and improvements in its business model are already beginning to be seen. Changxie electricity prices are expected to rise in 2027. As electricity prices enter a new upward cycle, the thermal power industry's dividend capacity and willingness to pay dividends are expected to continue to increase in the future.
Orient Securities's main views are as follows:
3Q26 Thermal Power's profit bottomed out, and the low level of sector performance may have passed
The total revenue of the 3Q26 Thermal Power sample company was 3.6% YoY, total net profit to mother -74.5% YoY, -54.0% YoY, and total operating cash flow -18.2% YoY; gross margin -9.0 pct to 9.9% yoy, and net margin -8.0 pct to 3.4% yoy. Of the 30 sample companies, only 3 had a year-on-year improvement in net profit, and 27 declined. The decline in profit in the third quarter was mainly due to a sharp rise in fuel costs due to the year-on-year rise in coal prices; on the electricity price side, although spot and monthly electricity prices in some regions have risen markedly, the overall settlement price only rose slightly, making it difficult to make up for the rise in unit fuel costs caused by the sharp rise in coal prices. The coal and electricity price gap narrowed, and the profit space for electricity was significantly compressed. Performance differentiation is related to differences in regional increases in electricity prices and differences in electricity consumption structure. Looking ahead to 2027, the bank anticipates that the thermal power sector is expected to see a profit recovery with the rise in Changxie electricity prices in the year. If market coal prices remain at a high level during the 2027 Changxie contract window, and monthly and spot electricity prices in some coastal areas have already rebounded first, the 2027 Changxie electricity prices are expected to rise significantly year-on-year, laying the foundation for thermal power profit restoration.
3Q26 nuclear power performance is recovering and improving, hydropower and new energy sources are under pressure
The 3Q26 nuclear power sample company's revenue was +3.7% YoY, net profit to mother +33.4% YoY, and operating cash flow +52.0% YoY. Looking ahead to 2027, the bank expects nuclear power to continue the upward trend in profits: 1) new units will be put into operation one after another to provide incremental support for power generation growth; 2) market-based electricity prices in coastal areas are expected to pick up, driving the recovery of electricity profits in the context of relatively stable nuclear fuel costs. Combined with nuclear power mechanism electricity price policies, it is expected to be promoted to more provinces, further enhancing the sector's revenue stability. The 3Q26 hydropower sample company's revenue was -2.8% YoY, net profit to mother -13.5% YoY, and operating cash flow -7.9% YoY. Of the 7 sample companies, the performance of 3 companies, Huaneng Hydropower, Sichuan Investment Energy, and Electric Investment Hydropower, improved year-on-year, while the performance of the remaining 4 companies, including Changjiang Electric Power, declined year-on-year. Looking ahead to 2027, the bank expects El Niño to have abundant water next year, providing support for the growth in hydropower usage hours and power generation; considering the low marginal hydropower generation costs and the high proportion of fixed costs, under the premise that electricity prices and consumption conditions are stable, electricity increases are expected to fully transform into profit elasticity; if the trend of financial cost savings continues, sector profits will further increase. The 3Q26 New Energy Sample Company's revenue was +2.3% YoY, net profit to mother was -31.6% YoY, and -34.1% YoY. It is expected that in 2027, new energy consumption and market-based electricity price pressure will still limit operators' profits, and it will take time for sector performance to fully recover.