Core Viewpoint - The report from Guosheng Securities indicates that the performance of thermal power in Q3 continues to improve, with a rebound in coal prices enhancing expectations for stable electricity prices. Additionally, the improvement in hydropower due to autumn rainfall, along with a shift in investment styles, suggests a focus on asset allocation. The frequent introduction of energy storage policies and the need for improvements in the capacity compensation mechanism highlight the value of adjustable power sources, coupled with expectations for Q3 performance catalysts [1]. Demand Side - In September, the national electricity consumption increased by 4.5% year-on-year. According to data from the National Energy Administration, from January to September, the total electricity consumption reached 77,675 billion kilowatt-hours, a year-on-year increase of 4.6%, with industrial power generation accounting for 72,557 billion kilowatt-hours. In September alone, the total electricity consumption was 8,886 billion kilowatt-hours, also reflecting a 4.5% year-on-year growth [2]. Supply Side - In September, the electricity generation from large-scale industrial enterprises increased by 1.5% year-on-year. Overall, the power production from large-scale industries showed stable growth, with September's generation reaching 8,262 billion kilowatt-hours, marking a 1.5% year-on-year increase, and an average daily generation of 275.4 billion kilowatt-hours. From January to September, the total generation was 72,557 billion kilowatt-hours, reflecting a 1.6% year-on-year growth [4]. Breakdown by Type - In September, the electricity generation from large-scale industrial thermal power and wind power shifted from growth to decline, while hydropower saw a turnaround from decline to growth, nuclear power growth slowed, and solar power generation accelerated. Specifically, large-scale industrial thermal power decreased by 5.4% year-on-year, compared to a 1.7% increase in August; large-scale industrial hydropower increased by 31.9%, reversing from a 10.1% decline in August; nuclear power grew by 1.6%, slowing by 4.3 percentage points from August; wind power decreased by 7.6%, down from a 20.2% increase in August; and solar power generation increased by 21.1%, accelerating by 5.2 percentage points from August [5].

Summary of Conference Call Notes Industry Overview - The discussion primarily revolves around the **electric power industry**, focusing on both **thermal power** and **renewable energy** sectors, particularly in the context of recent market performance and regulatory changes. Key Points and Arguments Hydrological Data and Its Impact - Recent hydrological data indicates a slight decline, with the inflow at the Three Gorges Dam showing a year-on-year decrease of 2% compared to the beginning of the year. In contrast, the inflow at the Yangtze River has increased by 11.2% year-to-date. This situation has led to significant water retention efforts at the Yangtze River, impacting inflow rates substantially [1][1]. Performance of Power Companies - Companies such as **Huayin, Jingkong, and Datang Power** have shown strong performance, primarily driven by improved earnings in the thermal power sector. Conversely, gas and hydropower companies have experienced declines, indicating a lack of strong market preference for local assets [2][2]. Investment Sentiment and ETF Trends - The overall allocation to the electric power sector has decreased significantly, with the proportion dropping to 0.87% by the end of Q1, a reduction of approximately 66% from previous levels. This low allocation is attributed to a lack of confidence in ETFs, despite positive trends in the performance of thermal and hydropower ETFs [3][3]. Future Outlook for Thermal Power - The thermal power sector's performance is expected to extend beyond Q2, with ongoing strong earnings anticipated for Q3 and the full year. Current low coal prices are likely to further adjust the annual average coal price downward, with spot coal prices down by 227 yuan year-on-year [5][5]. Dividend Stability and Policy Implications - The stability of dividends is projected to increase, aligning with the broader trend of public sector investment. The introduction of new policies, particularly in Shandong, has set benchmark prices for mechanism electricity, which may enhance the return on equity (ROE) for green energy projects [6][9]. Mechanism Electricity Pricing - The recent policy changes in Shandong have established higher benchmark prices for mechanism electricity, which could positively influence the valuation of pre-construction investments. The expected utilization hours for existing projects are estimated to be between 80% and 85% [9][11]. Investment Strategies - Two primary investment strategies are suggested: focusing on short-term opportunities in green energy during the performance vacuum period and identifying long-term investment opportunities as policies are implemented. Companies with high ROE in the energy sector are highlighted as worthy of attention [14][15]. Market Dynamics and Portfolio Composition - The current market dynamics indicate a significant under-allocation to the electric power sector, with many companies showing a holding ratio of around 0.1%. This under-allocation is expected to shift as the market begins to recognize the value in both thermal and hydropower investments [17][18]. Additional Important Insights - The call concluded with a summary of investment combinations, emphasizing the defensive and offensive strategies within the thermal and renewable energy sectors, respectively. The importance of policy-driven investments in green energy was reiterated, highlighting the potential for high ROE companies in the energy sector [19][19].

Group 1 - The overall electricity consumption growth rate remained stable in April, with significant contributions from the coal and mining sectors, while non-metal products and electrical machinery continued to show weakness [1] - In April, the electricity consumption growth rates for different sectors were +4.7% for the whole society, +13.8% for the secondary industry, +3.0% for the tertiary industry, +9.0% for urban residents, and +7.0% for rural residents [1] - The installed capacity of photovoltaic power increased significantly by 45.2 GW in April, with a cumulative total of 104.9 GW year-to-date, exceeding market expectations [1] Group 2 - The decline in market-based electricity prices in Guangdong and Jiangsu since 2025 has been significant, with Jiangsu's June electricity price down by 9.72 cents/kWh year-on-year [2] - The latest price for Qinhuangdao thermal coal Q5500 is 611 RMB/ton, a decrease of 275 RMB/ton year-on-year, indicating a notable drop in energy prices [2] - The performance of thermal power is expected to remain strong due to lower coal prices, which are shaping the cost structure for Q2 and the entire year [3] Group 3 - The management of market capitalization and electricity reform is strengthening, with measures to stabilize expectations, reduce impairments, and enhance dividends being implemented [3] - The growth in renewable energy sources is contributing to an increase in return on equity (ROE) for green electricity, indicating a positive trend for profitability in the sector [3]

Investment Rating - The report assigns a "Buy" rating to Huaneng International, with a target price of HKD 6.12 per share, indicating a potential upside of 24% from the current price of HKD 4.93 [6][11]. Core Views - The company is expected to benefit from declining coal prices, leading to sustained growth in thermal power performance. In Q1 2025, the company reported a net profit of RMB 4.973 billion, an increase of 8.19% year-on-year, despite a 7.70% decline in revenue [3][4][8]. - The company plans to add approximately 10GW of new renewable energy capacity in 2025, with a focus on solar and wind energy, which is expected to enhance its low-carbon energy portfolio [5][10]. Summary by Sections Financial Performance - In Q1 2025, Huaneng International's total electricity generation was 106.633 billion kWh, a decrease of 5.66% year-on-year. The average settlement price for electricity was RMB 488.19 per MWh, down 1.96% year-on-year. The company's revenue for the quarter was RMB 60.335 billion, a decrease of 7.70% year-on-year, while net profit increased to RMB 4.973 billion [3][8]. Coal Price Impact - The report highlights that the company is benefiting from lower coal prices, with the average coal price for Q1 2025 at RMB 888 per ton, down 9% year-on-year. The fuel cost was RMB 259 per MWh, a decrease of 10% year-on-year. The coal segment achieved a pre-tax profit of RMB 3.982 billion, up 41% year-on-year [4][9]. Renewable Energy Expansion - Huaneng International's renewable energy capacity is projected to grow significantly, with plans for 10GW of new installations in 2025, including approximately 7GW from solar energy. The company’s renewable energy generation in Q1 2025 saw an increase of 8.81% for wind and 51.21% for solar compared to the previous year [5][10]. Valuation Metrics - The report provides a financial forecast for the company, projecting revenues of RMB 246.931 billion for 2025, with a net profit of RMB 11.693 billion, reflecting a growth rate of 14.8% year-on-year. The price-to-earnings ratio is expected to be 6.1 times at the current share price [7][14].