The Zhitong Finance App learned that GF Securities released a research report saying that the 2026Q1-3 utilities sector (GFGY) achieved net profit of 142.2 billion yuan (-25.1% year over year) and net profit after deducting non-return to mother of 137.6 billion yuan (-21.8% year over year); the sector's fundamentals are expected to improve, dividend value is outstanding, and has significant allocation value. Looking forward to the future, thermal power is expected to resonate with performance and valuation. At the same time, it is recommended to focus on electricity price expectations to improve the profitability of water, fire, and nuclear profits.
The main views of GF Securities are as follows:
Free cash flow in the sector has increased dramatically, and the fundamentals of rising electricity prices can be expected to improve
The 2026Q1-3 utilities sector (GFGY) achieved net profit of 142.2 billion yuan (YoY -25.1%) and net profit without return to mother of 137.6 billion yuan (-21.8% YoY), of which 26Q1 net profit to mother was 52.7 billion yuan (-10.2% YoY), 26Q2 net profit to mother 46.9 billion yuan (-23.3% YoY), and 26Q3 net profit to mother of 42.6 billion yuan (YoY -39.2%). Under the adverse effects of falling electricity prices and rising coal prices, the decline in Q3 thermal power profits widened, and the performance of the green power sector continued to be under pressure. The bottom of the sector cycle is already showing signs, and the improvement in cash flow has exceeded expectations: 1. Expectations of a recovery in electricity prices have increased: coal prices are on the verge of loss in Q3 this year, and there is plenty of momentum to raise electricity prices. Currently, monthly electricity prices in coastal provinces such as Jiangsu and Guangdong continue to rise. It is expected that there is a high probability that electricity prices will rise next year, and the recovery in electricity prices will significantly repair the industry's profit level. 2. Free cash flow improvement: Net operating cash flow of the 2026Q1-3 sector was 521.3 billion yuan (-5.9% YoY), and the decline in cash flow was far less than the decline in profit. At the same time, net investment cash flow decreased 17.0% year over year, free cash flow of 127.2 billion yuan (+60.5% year over year), and the cash flow improvement exceeded expectations; 3. Low dividend and cost performance ratio was outstanding: The sector's public equity holdings increased 0.34pct to 0.59% month-on-month at the end of the third quarter. The sector's fundamental expectations improved, dividend value was outstanding, and there was significant allocation value.
The thermal power performance cycle has bottomed out, and profits can be expected to recover, cash flow will improve, and dividend capacity will improve
The net profit of the thermal power sector in the first three quarters was 42.8 billion yuan (down 41.9% year on year), of which net profit for Q1, Q2, and Q3 was -1.5%, -36.5%, and -76.0%, respectively. The decline in thermal power performance increased due to the impact of the decline in Changxie electricity prices this year and the rise in coal prices starting in Q2. Looking forward to the future, thermal power is expected to resonate with performance and valuation: 1. Electricity prices are expected to rise and profit: The fourth quarter annual long-term cooperation signing cycle is approaching, and monthly electricity prices are becoming more and more guidance on annual long-term cooperative electricity prices. Under pressure from rising coal prices, long-term coking electricity prices are expected to rise steadily next year, and thermal power profits are expected to recover. 2. Cyclical attributes weaken profit stability: Thermal power capacity and electricity prices bring stable income, and the ability to regulate thermal power can increase electricity revenue through market-based transactions. After the annual long-term cooperation ratio decreases, thermal power is more likely to obtain stable income through monthly long-term cooperation and spot. 3. Investment contraction free cash flow improvement: Investment cash flow in the thermal power sector fell 19% year-on-year in the first three quarters, and the 10% drop in free cash flow was far less than the decline in profit. 4. Cost-effective dividends: A number of thermal power companies have issued dividend promises, and some high-dividend companies have dividend ratios of more than 4% under central profits.
Hydropower and gas performance is steady, nuclear power production is at its peak, and green power is looking forward to a reversal of the difficult situation
The net profit of the water/nuclear/green/gas sector in 2026Q3 was -14.6%/+20.7%/-36.7%/+5.3%, respectively. Hydropower: Water has dried up in Q3. Under El Niño, water is expected to recover next year, while outbound electricity prices are expected to rise. Next year, hydropower is expected to see a sharp rise in volume and price, and the dividend value of hydropower is outstanding in a low interest rate environment. Nuclear power: The improvement in Q3 performance was clear. The 15th five years ushered in a peak of installed capacity and production, and electricity prices are expected to increase next year, and nuclear power profit flexibility is remarkable. Green electricity: Performance pressure has deepened due to the impact of electricity prices, consumption, etc., but cash flow has improved markedly, and the recovery in electricity prices is expected to bring about marginal improvements. Gas: Gas volume growth is slightly lower than expected, gross margin is still being fixed, overall performance is steady, and demand is expected to recover.
It is recommended to focus on electricity price expectations to improve profit elasticity. (1) Thermal power: Huaneng International Electric Power Co., Ltd., Guodian Electric Power Co., Ltd., Baoxin Energy, Jiangsu Guoxin, Shenneng, Huaneng Mengdian; (2) Hydropower: Sichuan Investment Energy and SDIC Electric Power with rising electricity prices and improved incoming water supply; (3) Nuclear power: China Nuclear Power and China General Nuclear Power, which have reversed electricity price expectations and are at the peak of installation and production; (4) Diversified gas: Fengjiu Energy, Shouhua Gas, a high-quality gas field asset.
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