Tianfeng: The issuance of mid-to-long term bonds by two major internet companies in 2025 is accelerating, and we expect the acceleration of resolving the issue of subsidy arrears.

Tianfeng released a research report stating that since 2024, the CHINA POWER system has overall balance in supply and demand, but still faces issues such as misalignment of new energy deployment areas, lagging construction of transmission lines, energy storage, and peak load power sources. In response to this, the investment amount of power grid enterprises will remain at a relatively high level in the future period, with the grid investment of State Grid and Southern Power Grid expected to exceed 825 billion yuan by 2025, an increase of 220 billion yuan compared to 2024. Facing issues such as misalignment of new energy deployment areas, lagging construction of transmission lines, energy storage, and peak load power sources, the capital expenditure of power grids will significantly accelerate in 2025. At the same time, the list of the first batch of renewable energy compliant companies has been published for over two years, and previous policies have clearly addressed the subsidy gap issue through special financing, Tianfeng is optimistic about the accelerated resolution of subsidy arrears. Specifically, it is recommended to pay attention to new energy operators such as China Longyuan Power Group Corporation, DATANG RENEW, CHINA SUNTIEN, China Three Gorges Renewables, Huadian New Energy Group Corporation, Jinko Power Technology, CECEP Wind-Power Corporation, CECEP Solar Energy, and CGN NEW ENERGY; power generation companies transitioning to new energy such as CHINA RES POWER, Huaneng Power International, Inc., GD Power Development; and waste incineration power generation companies such as Grandblue Environment, Dynagreen Environmental Protection Group, and EB ENVIRONMENT. Key points from Tianfeng: State Grid and Southern Power Grid undertake large-scale grid construction tasks, such as ultra-high voltage projects, distribution network upgrades, and new energy integration projects. Bond financing can quickly raise funds, alleviate funding gaps for projects, and ensure project progress. We have reviewed the historical bond issuances of the two grid companies and analyzed the differences in bond issuance of grid companies in 2025. The medium and long-term bond issuance scale of State Grid and Southern Power Grid far exceeds historical levels in 2025. Since 2024, the CHINA POWER system has overall balance in supply and demand, but still faces issues such as misalignment of new energy deployment areas, lagging construction of transmission lines, energy storage, and peak load power sources. In response to this, the investment amount of power grid enterprises will remain at a relatively high scale in the near future, with the grid investments of State Grid and Southern Power Grid expected to exceed 825 billion yuan by 2025, an increase of 220 billion yuan compared to 2024. The bond issuance scale of the two grids has greatly increased, and the bond terms are generally longer. State Grid issued bonds totaling 1.46 trillion yuan during the "14th Five-Year Plan" period (up to 2025M8), exceeding the sum of the "12th Five-Year Plan" and "13th Five-Year Plan". At the same time, the bond issuance of State Grid from January to August 2025 (439.5 billion yuan) increased by 56% compared to the full year of 2024, and the proportion of bonds with terms greater than or equal to 5 years reached 51%, far exceeding historical levels. Southern Power Grid has issued a total of 968.8 billion yuan in bonds from 2002 to August 2025, with a cumulative bond issuance of 406.3 billion yuan during the "14th Five-Year Plan" (up to 2025M8). At the same time, the bond issuance of Southern Power Grid from January to August 2025 (92.9 billion yuan) was close to the full year of 2024, and the issuance with terms greater than or equal to 10 years has reached 14 billion. Financial indicators comparison: State Grid has a lower debt ratio, while Southern Power Grid has slightly higher profit quality. The asset scale of power grids has been accumulating year by year, with the asset scale of State Grid and Southern Power Grid reaching 5.96 trillion and 1.39 trillion yuan respectively in 2025H1; and the asset-liability ratios are 54.2% and 60.6% respectively for the same period. In comparison with the operational indicators of the two grids, in 2024, the operating income and net profit of State Grid were 3.9 and 4.6 times higher than those of Southern Power Grid in the same period. However, from the perspective of profit quality, the ROA and ROE of Southern Power Grid in 2024 were 2.9% and 3.8%, respectively, which were higher than those of State Grid in the same period. The two grids have established settlement companies, clearly addressing the subsidy gap issue through special financing. The issue of renewable energy subsidy arrears is prominent, with the Wind Energy Committee of the China Renewable Energy Society estimating accumulated subsidy arrears of approximately 400 billion yuan by the end of 2021. In 2022, the National Development and Reform Commission, Ministry of Finance, and State-owned Assets Supervision and Administration Commission agreed to establish Beijing and Guangzhou Renewable Energy Development Settlement Service Co., Ltd., to coordinate the resolution of renewable energy generation subsidy issues. Subsidy fund gaps will be solved through special financing based on market principles, with special financing interest expenses covered in the budget of the renewable energy development fund. Investment recommendations: Facing issues such as misalignment of new energy deployment areas, lagging construction of transmission lines, energy storage, and peak load power sources, the capital expenditure of power grids will significantly accelerate in 2025. At the same time, the list of the first batch of compliant renewable energy companies has been published for over two years, and previous policies have clearly addressed the subsidy gap issue through special financing. We are optimistic about the accelerated resolution of subsidy arrears. Specifically, it is recommended to pay attention to new energy operators such as China Longyuan Power Group Corporation, DATANG RENEW, CHINA SUNTIEN, China Three Gorges Renewables, Huadian New Energy Group Corporation, Jinko Power Technology, CECEP Wind-Power Corporation, CECEP Solar Energy, and CGN NEW ENERGY; power generation companies transitioning to new energy such as CHINA RES POWER, Huaneng Power International, Inc., GD Power Development; and waste incineration power generation companies such as Grandblue Environment, Dynagreen Environmental Protection Group, and EB ENVIRONMENT.