Shenwan Hongyuan Group: Significant recovery in profits for hydropower and gas, interest rate cut benefits entire industry

Shenwan Hongyuan Group released a research report stating that although the on-grid electricity prices of hydropower in the first half of this year were affected by the structural impact of power generation and showed an overall decline compared to the same period last year, the overall profitability of various hydropower companies has still significantly improved. Considering that the water storage volume of large hydropower plants this year is significantly higher than the same period last year, coupled with multi-reservoir coordination, all cascade hydropower stations can achieve increased generation, and the potential for electricity generation for hydropower companies in the second half of the year is expected to be further unleashed. With the dual benefits of cost reduction and a rise in residential prices, city gas companies' non-recurring/core profitability has generally shown a significant year-on-year increase. In the first half of 2024, the overall asset-liability ratio of key public utility companies declined, with the debt ratio of the gas sector at a low industry level. At the same time, China's Loan Prime Rate (LPR) has continued to decline in recent years, and interest rate cuts are helping companies reduce net interest expenses. The main views of Shenwan Hongyuan Group are as follows: Coal-fired power: Cost repairs in the first half of 2024 have significantly improved profitability, while the growth rate of electricity generation in Q2 has decreased Hydropower: Significant water abundance in the first half of the year, with national hydropower generation showing high growth in a low base background Nuclear power: Short-term stability is maintained, and long-term growth is worth looking forward to Green power: Wind and solar conditions are poor, coupled with prominent integration issues, profitability is generally under pressure Gas: Power recovery is in progress, and marginally improved cost reduction + price increases The report also provides investment analysis recommendations for different sectors based on the current market conditions. It recommends specific companies for investment in the hydropower, nuclear power, coal-fired power, and gas sectors.Enhanced stability is suggested to be focused on CHINA RES POWER(00836), China Longyuan Power Group Corporation(001289.SZ), CHINA SUNTIEN(600956.SH), Fujian Funeng(600483.SH), CHINA POWER(02380), China Three Gorges Renewables(600905.SH).Natural Gas: Cost reduction + Resident gas price changes benefit city gas companies' profitability rebound, recommended high-quality Hong Kong-listed city gas companies CHINA RES GAS (01193), KUNLUN ENERGY (00135), TG SMART ENERGY (01083), ENN ENERGY(02688), CHINA GAS HOLD (00384). At the same time, we recommend integrated natural gas trading companies ENN Natural Gas (600803.SH), Shenzhen Gas Corporation (601139.SH), Jiangxi Jovo Energy (605090.SH), CHINA SUNTIEN. Risk Warning: Fluctuations in coal prices and natural gas prices, new energy installation below expectations, unexpected changes in water supply, wind, and sunlight.