201802券商二電力-2018 china equity market power industry outlook-chuancai research 2018 strategy report_W

1、2018 China Equity Market Power Industry Outlook Chuancai Research 2018 Strategy Report (20180207)v Power industry: high coal prices affect overall sector profitabilityThe coal prices stayed at a relatively high level in 2017, the decrease in thermal power profitability had led to the overall decline

2、 of the power industry, underperforming CSI 300 by 28.41%. In 1-10M2017, the whole society consumed electricity of 5201.8 billion kWh, an increase of 6.69%YoY; the installed capacity nationwide increased 7.33%YoY, with the overall growth rate down 3.48%YoY. With the slowdown of new capacity installa

3、tion and the rebound of whole society power consumption, we think 2018 may see improved supply-demand pattern and revival of industrial prosperity.v Thermal power: coal-power linkage improves profitability, high safety margin ensures revenueWhile high coal prices in 2017 undermined the sector profit

4、s, it also triggered the coal-electricity linkage mechanism. If coal and electricity linkage starts, we estimate the average thermal power price could improve by 10.34%. Thermal power companies are expected to embrace growing profitability, specifically HDPI (600027.SH) and HPI (600011.SH) are worth

5、 attention. If coal-power linkage does not start, given the existing units, ZHEJIANG ENERGY ELECTRIC POWER(600023.SH) has a higher safety margin.v Hydropower: expectation for steady growth and high dividends.In 2017 NRDC and NEA issued policies measures aimed at the issue of hydropower curtailment.

6、With the ongoing trend for the marketization of power pricing, the hydropower generation is likely to pick up with the problem of curtailment alleviated. Currently the hydropower on-grid price remains the lowest among all power sources. As the thermal power prices are on the upside trend, it could u

7、nderpin the hydropower on-grid price. During the “13th five- year plan”, growth of new hydropower generating units tend to slow down, and costs for new hydropower projects might also narrow. Companies are likely to maintain a relatively high level of dividends.v Power distribution and selling: focus

8、 on integrated business model In 2017, the market size of the power industry nationwide will reach 2 trillion kWh. Reform of electricity distribution will lead to new profit model: a shiftfrom simply selling electricity to a “sales + service” model. The sales company started to integrate upstream ge

9、neration with power transmission and distribution. Companies with an edge in users and sources are more likely to shine. We are upbeat about companies that combine power generating, distribution and selling businesses altogether.v We give the power sector “Increase” rating for the initial coverage W

10、e suggest investors to pay attention to the following companies: Thermal power: HPI (600011.SH) and ZHEJIANG ENERGY ELECTRIC POWER (600023.SH); Hydropower: CYPC (600900.SH) and HUANENG LANCANG RIVER HYDROPOWER(600025.SH); Power distribution and selling business: TGWC (600116.SH) and FULING POWER (60

11、0452.SH)Risk reminder: Less-than-expected demand, weaker-than-expected policy implementation, surge of coal prices.Equity Research ReportDepartmentGlobal ResearchCategory Sector RatingDate In-depth Report PowerIndustry Increase 2018/2/7AnalystLi CHENSAC Reg. No：S1100517060001 8610 - 66495901chenlicc

12、Peng WANGSAC Reg. No：S1100516120001 8621 - 68595118Ouwen YANGSAC Reg. No: S1100517070002 8610 - 66495651ContactWenyi ZHOUSAC Reg. No: S1100117120006 8610 66495910Taiyong ZHANGSAC Reg. No: S1100117100002 0755 25332329Research

13、 DivisionBeijingFloor 15, China Overseas International Center, 28 Pinganli West Street, Xicheng District,100034Floor 11, Hang Seng Building,1000 Lujiazui Ring Road, 200120ShanghaiShenzhen Floor 21, Duty-freeBuilding, 6 Fuhua 1st Road, Futian District, 518000ChengduFloor 17, Unit B, China Overseas In

14、ternational Center, China (Sichuan) Pilot-free Trade Zone, 610041This report is issued by Chuancai Securities Limited and must be read with the disclaimer and analyst certification in the appendix Chuancai ResearchTable of ContentsI.2017 review：High coal prices led to rising cost for power sector51.

15、1. High coal prices led to the increase of operating cost61.2. The overall industrial profitability dropped61.3. The imbalance between supply and demand has eased to some extent9II. Thermal Power industry：Coal-Power linkage improves profitability, high safety margin ensures revenue132.1. Coal prices

16、 might have entered a downside trend142.2. Thermal power generation capacity expected to remain, coal-power linkagesystemlikely to improve the net price142.3. If the coal-power linkage mechanism starts, investors could focus on companies that arehighly volatile in profitability162.4. If the linkage

17、mechanism fails to start，investors could focus on those with high safetymargin17III. Hydropower: expectation for upside trend of earnings in 2018, high dividends likely tocontinue193.1. Hydropower: main business operating cost remains stable203.2. Growing demand for hydropower benefits long-term ope

18、rating revenue203.3. Hydropower enterprises likely to maintain high growth213.4. Increased market competition benefits companies with smaller cost in unit powerproduction22IV. Power distribution and selling：a trillion market, focus on companies with integratedbusiness models224.1. Reform on power di

19、stribution and selling business fosters new profit model234.2. Fast expansion of power distribution and selling power trading center23V. Related companies24Risk reminder26This report is issued by Chuancai Securities Limited and must be read with the disclaimer and analyst certification in the append

20、ix 2/28 Chuancai ResearchTable of ExhibitsFIGURE 1: POWER SECTOR UNDERPERFORMS CSI3005FIGURE 2: PUBLIC UTILITIES RANKING 18/285FIGURE 3: POWER SECTOR P/E(TTM) ABOVE 5-YEAR AVERAGE5FIGURE 4: TOP 10 AND BOTTOM 10 IN GROWTH RATE5FIGURE 5: CIRCUM-BOHAI-SEA THERMAL COAL AVERAGE PRICE CNY585/TONIN 20176FI

21、GURE 6: THERMAL POWER COMPANIES OPERATING COST PICKED UP BY 40%6FIGURE 7: 1-3Q17 OPERATING REVENUE UP 13.22%YOY7FIGURE 8: OPERATING REVENUE GROWTH RATE UP 19.71% YOY7FIGURE 9: GROWTH MARGIN DIPPED 11.31%YOY7FIGURE 10: NET MARGIN DECREASED BY 4.96%YOY7FIGURE 11: EXPENSE DECLINED BY 1.81% YOY7FIGURE12

22、: FINANCIAL EXPENSE RATIO DROPPED SIGNIFICANTLY DRIVING THE EXPENSE RATIO DOWN7FIGURE 13: DEBT TO ASSET RATIO INCREASED BY 1.91% YOY8FIGURE 14: POWER INDUSTRY ROE DECLINED BY 3.09% YOY8FIGURE 15: 2017 1-10M WHOLE SOCIETY ELECTRICITY CONSUMPTION UP 6.69%YOY9FIGURE 16: 1-10M17 PRIMARY INDUSTRY POWER C

23、ONSUMPTION INCREASED BY 7.42%9FIGURE 17: 1-10M17 SECONDARY INDUSTRY POWER CONSUMPTION INCREASED BY 5.7%9FIGURE 18: 1-10M2017 TERTIARY INDUSTRY GREW BY 10.7%10FIGURE 19: 1-10M2017 URBAN RESIDENTIAL POWER CONSUMPTION GREW BY 7.64%10FIGURE 20: 1-10M2017 INSTALLED CAPACITY GREW BY 7.33%YOY11FIGURE 21: 1

24、-10M2017 THERMAL POWER INSTALLED CAPACITY ACCOUNTS FOR 65%11FIGURE 22: 1-10M2017 THERMAL POWER INSTALLED CAPACITY GREW BY 5.01%YOY11FIGURE 23: 1-10M2017 THERMAL POWER INSTALLED CAPACITY GREW BY 3.54%YOY11FIGURE 24: 1-10M2017 POWER GENERATION CAPACITY INCREASED BY 6%YOY12FIGURE 25: 1-10M2017 THERMAL

25、POWER CAPACITY RATIO IN TOTAL POWER GENERATION (73.1%)12FIGURE 26: 1-10M2017 THERMAL POWER GENERATION CAPACITY INCREASED BY 5.4%YOY.12FIGURE 27: 1-10M2017 HYDROPOWER GENERATION CAPACITY INCREASED BY 2.2%YOY12FIGURE 28: THE DECREASE IN EQUIPMENT UTILIZATION HOURS HAS NARROWED DOWN 13 FIGURE 29: 1-10M

26、 AVERAGE EQUIPMENT UTILIZATION HOURS INCREASED BY 26 HOURS13FIGURE 30: 1-10M AVERAGE EQUIPMENT UTILIZATION HOURS DIPPED BY44 HOURS13FIGURE 31: 1-10M AVERAGE EQUIPMENT UTILIZATION HOURS INCREASED BY 151 HOURS13 FIGURE 32: THE COST OF FUEL IS THE LARGEST PART OF THE MAIN BUSINESS14FIGURE 33: HPI（60001

27、1.SH）FUEL COST ACCOUNTS FOR 73% OF TOTAL OPERATING COST.14FIGURE 33: HYDROPOWER MAIN BUSINESS HAS RELATIVELY STABLE COST20FIGURE 34: HUANENG HYDROPOWER(600025.SH) DEPRECIATION ACCOUNTS FOR 67% OF OPERATING REVENUE20FIGURE 34: HYDROPOWER HAS THE LOWEST AVERAGE ON-GRID PRICE21This report is issued by

28、Chuancai Securities Limited and must be read with the disclaimer and analyst certification in the appendix 3/28 Chuancai ResearchFIGURE 35: HYDROPOWER INSTALLED CAPACITY ON DOWNSIDE TREND21FIGURE 36: CYPC (600900.SH) DIVIDEND YIELD WAS 4.97%21FIGURE 37: CYPC HAS A UNIT PRODUCTION COST BELOW THE INDU

29、STRY AVERAGE22FIGURE 38: CYPC HAS A INSTALLED CAPACITY FAR EXCEEDING22FIGURE 39: 2017 MARKET TRADING CAPACITY REACH 2 TRILLION KWH23TABLE 1. THE NON-FERROUS METAL SECTOR RANKS AMONG THE TOP CONTRIBUTORS TO WHOLE SOCIETY POWER CONSUMPTION10TABLE 2: AVERAGE ANNUAL GROWTH RATE OF ELECTRICITY CONSUMPTIO

30、N OF THEWHOLE SOCIETY DURING THE “13TH FIVE-YEAR PLAN” MAY BE ABOUT 5.6%15TABLE 3: NATIONAL INSTALLATION CAPACITY ESTIMATED TO FALL TO 5.5%15TABLE 4: AVERAGE COAL PRICE UP OR DOWN 30YUAN/TON TO TRIGGER THE COAL- POWER MECHANISM16TABLE 5: ESTIMATION OF THE INFLUENCE OF COAL-POWER LINKAGE MECHANISM ON

31、 THERMAL POWER COMPANIES PROFITS17TABLE 6. IGNITION SPREAD OF POWER GENERATING UNITS IN DIFFERENT PROVINCES (TOP10)18TABLE 7. THE IGNITION SPREAD AND HIGH-PARAMETER UNITS OFMAJOR COMPANIES18TABLE 8: CHUANCAI RESEARCH STOCK POOL25This report is issued by Chuancai Securities Limited and must be read w

32、ith the disclaimer and analyst certification in the appendix 4/28 Chuancai ResearchI.2017 review：High coal prices led to rising cost for powersectorIn 2017 the coal prices stay at a relatively high level, the decrease in thermal power profitability has led to the overall decline of the power industr

33、y, underperforming the broader market. As of December 27, the power industry declined by 8.99%. The overall public utilities sector fell by 7.46%, ranking 18 among 28 sectors. Segment-wise, the hydropower increased by 0.42% while thethermal power dropped by 15.94%.Figure 1: Power sector underperform

34、s CSI300Figure 2: Public Utilities ranking 18/28Source：Wind，Chuancai ResearchSource：Wind，Chuancai ResearchAs of December 27, 2017, the power industrys P/E (TTM) was 24.09 (X), higher than the average P/E by 40% over the past five years. The CSI 300 Index has a P/E (TTM) of 14.13(X) over the same per

35、iod. Specifically, thermal power and hydropower has a P/E (TTM) of 33.36(X) and 18.06(X), respectively. For individual stocks, the top 3 gainers of the power industry are CYPC (600900.SH),SCTE (600674.SH) and SDIC POWER (600886.SH).Figure 3: Power sector P/E(TTM) above 5-year averageFigure 4: Top 10

36、 and bottom 10 in growth ratePower sector 5-year average P/E Source：Wind，Chuancai ResearchSource：Wind，Chuancai ResearchThis report is issued by Chuancai Securities Limited and must be read with the disclaimer and analyst certification in the appendix 5/28 Chuancai Research1.1. High coal prices led t

37、o the increase of operating costSince 2015 the Circum-Bohai-sea thermal coal price index has increased from CNY370/ton to CNY607/ton. In 2017, coal prices stabilized but remained at a high level as the coal supply-side reform and new effective coal capacity was put into operation. High coal prices l

38、ed to a substantial increase in the cost of thermal power companies. Due to coal prices, thermal power enterprisesoperating costs rose about 40%YoY.Figure 5: Circum-Bohai-sea thermal coal averageprice CNY585/ton in 2017Figure 6: Thermal power companies operating costpicked up by 40%2017 coal price a

39、t high level7006005004003002001000Source：Wind，Chuancai ResearchUnit：CNY/tonSource：Wind，Chuancai Research1.2.The overall industrial profitability droppedThe operating revenue picked up while net profit slipped. In the first three quarters of 2017, the listed companies in the power industry realized a

40、 total revenue of CNY579.1 billion, an increase of 13.22%YoY. Net profit attributable to shareholders of the parent company totaled CNY45 billion, down 31.45%YoY; the overall gross profit margin was 18.45%.The total operating income of thermal power listed companies totaled CNY469.9 billion (up 14.3

41、4%YoY). The operating income of hydropower listed companies totaled CNY84.5 billion (up 5.17%YoY). With the gradually loosened electricity sales policy in multiple places, listed companies realized a total revenue of CNY24.5 billion, up 22.69%YoY. However, the gross margin has lost 4.04% to 18.27%an

42、d the net profit attributable to parent company has slipped 14.30%.This report is issued by Chuancai Securities Limited and must be read with the disclaimer and analyst certification in the appendix 6/28 Chuancai ResearchFigure 8: Operating revenue growth rate up 19.71%YoYFigure 7: 1-3Q17 operating

43、revenue up 13.22%YoYSource：Wind，Chuancai ResearchSource：Wind，Chuancai ResearchFigure 9: Growth margin dipped 11.31%YoYFigure 10: Net margin decreased by 4.96%YoYSource：Wind，Chuancai ResearchSource：Wind，Chuancai ResearchBecause of the substantial gain of revenue last year, the financial expense ratio

44、 dropped significantly, driving the expense ratio down during the period. In 1- 3Q2017, the overall expense ratio for the power industry was 9.96%, down 1.81%over the same period of last year.Figure12:financialexpenseratiodroppedFigure 11: Expense declined by 1.81% YoYsignificantly driving the expen

45、se ratio downSource：Wind，Chuancai ResearchSource：Wind，Chuancai ResearchThis report is issued by Chuancai Securities Limited and must be read with the disclaimer and analyst certification in the appendix 7/28 Chuancai ResearchThe overall asset-liability ratio of the sector increased, exerting more pr

46、essure on deleveraging. In 1-3Q2017, the asset-liability ratio of the power industry was 65.47%, an increase of 1.91%YoY. Pressures for deleveraging remained relatively harsh. In 1-3Q2017, the asset-liability ratio of hydropower segment continued to decrease, with 59.28% (down 1.38%YoY); the thermal

47、 power segment climbed (67.72%, up 3.06%YoY); The power distribution andselling segment increased (64.27 %, up 2.21%YoY).Figure 13: Debt to Asset ratio increased by 1.91% YoYSource：Wind，Chuancai ResearchGiven the decline in sector profitability, the overall power sector ROEwasnotably on the downside

48、 trend. In 1-3Q2017, the5.87%, down 3.09%YoY.power industry ROE wasFigure 14: Power industry ROE declined by 3.09% YoYSource：Wind，Chuancai ResearchThis report is issued by Chuancai Securities Limited and must be read with the disclaimer and analyst certification in the appendix 8/28 Chuancai Researc

49、h1.3. The imbalance between supply and demand has eased to some extentThe whole society electricity consumption rebounded. In 1-10M2017, the whole society consumed 5201.8 billion kWh of electricity, an increase of 6.69%YoY. Benefited from the economic revival, the electricity consumption of the seco

50、ndary industry rose sharply. The power consumption of the tertiaryindustry maintained a relatively high growth for the whole year.Figure 15: 2017 1-10M whole society electricity consumption up 6.69%YoY8%7%6%5%4%3%2%1%0%Source：Wind, Chuancai ResearchThe growth of electricity consumption in the second

51、ary industry drives the growth in power consumption of the whole society. In terms of industries, the cumulative electricity consumption of primary industry, secondary industry, tertiary industry and urban and rural residents in 1-10M were 995 billion, 362.8 billion, 7,367 million and 737.6 billion

52、kWh, up by 7.42%, 5.70%, 10.7% and7.64%, respectively.Figure 16: 1-10M17 primary industryconsumption increased by 7.42%powerFigure 17: 1-10M17 secondary industry powerconsumption increased by 5.7%15%10%10%8%6%4%2%0%-2%-4%5%0%-5%-10%This report is issued by Chuancai Securities Limited and must be rea

53、d with the disclaimer and analyst certification in the appendix 9/282017/92017/32016/92017/92017/32016/32016/92015/92015/32014/92016/32014/32015/92013/92015/32013/32012/92014/92014/32013/92013/32017/92017/32016/92012/92016/32015/92015/32012/32014/92014/32013/92013/32012/92012/3 Chuancai ResearchSour

54、ce：Wind，Chuancai ResearchSource：Wind，Chuancai ResearchFigure 18: 1-10M2017 tertiary industry grew by10.7%Figure 19: 1-10M2017 urban residential powerconsumption grew by 7.64%16%14%12%10%8%6%4%2%18%16%14%12%10%8%6%4%2%0%Source：Wind，Chuancai ResearchSource：Wind，Chuancai ResearchThe smelting and rollin

55、g process of non-ferrous metal industry demands a great amount of electricity, ranking among the top contributors to whole society power consumption. Jiangsu and Zhejiang Provinces have been on upside trendin electricity consumption.Table 1. The non-ferrous metal sector ranks among the top contributors to wholesociety power consumptionSourc