CITIC SEC: Recommends high-quality leading integrated enterprises in hydropower, nuclear power, and coal power with strong underlying assets.

CITIC SEC has released a research report stating that the electricity consumption growth rate for the whole society in June marginally fell to 3.7%. The main reasons are the weak electricity demand from urban and rural residents, as well as from the secondary industry sectors such as chemicals, while high-end technology industries like electrical engineering and computing continue to maintain strong growth. It recommends high-quality leading companies in hydropower, nuclear power, and integrated coal power with good underlying assets; H-shares of conventional power and green power with attractive dividends and safe valuations; and new scenes and models, such as virtual power plants and microgrids, which benefit from the increasing integration of digitalization and new power systems. CITIC SEC's main viewpoints are as follows: Demand: Residential electricity demand is weak, with the overall electricity consumption growth rate in June marginally dropping to 3.7%. According to data from the China Electricity Council (same below), in June 2026, the total society's electricity consumption was 898.1 billion kWh, a year-on-year increase of 3.7%, with the growth rate declining by 3.2 percentage points compared to May. The electricity consumption growth rates in various industrial sectors have all decreased sequentially, with the secondary and tertiary industries growing by 4.7% and 5.6% year-on-year, respectively, remaining relatively stable. Under the high electricity consumption base from last year due to extreme heat, residential electricity consumption in June 2026 dropped by 3.1% year-on-year, contributing negatively by -0.5% to the monthly electricity growth rate, which is the core reason for the overall slowdown in electricity growth. In June, the manufacturing sector's electricity consumption increased by 4.9% year-on-year, with high technology and equipment manufacturing experiencing a year-on-year growth of 10.3%. Specifically, the electricity consumption in electrical machinery and computer communications manufacturing grew by 16.5% and 11.0%, respectively, both maintaining strong growth. The electricity growth rates in the chemical and rubber product sectors were 0.4% and 8.6%, respectively, continuing to decline sequentially. Regionally, the coastal areas saw a year-on-year electricity growth rate drop of 4.0 percentage points to 4.6%, and the electricity growth rate in the Yangtze River Delta region showed a significant sequential decline. Supply: Investment growth rates on the source and grid sides have all decreased sequentially. From January to June, 15.87 million kW of new capacity was added in the domestic market, a year-on-year decrease of 46%, primarily due to the high base from the same period last year, which caused a significant drop in new renewable energy capacity. Power source investment from January to June fell by 3.2% year-on-year to 363.7 billion yuan, with growth rates turning negative, and investments in hydropower/thermal power/nuclear power/wind power all decreasing sequentially compared to January to May. Grid investment was 302.7 billion yuan, a year-on-year increase of 4.0%, still maintaining a growth trend but gradually slowing down. Consumption: Wind power remains weak, photovoltaic improves, and hydropower output growth slows. In June, the average utilization hours for national power generation equipment were 230 hours, a year-on-year decline of 7.1%. By power source, the utilization hours for hydropower decreased by 2.5% year-on-year to 346 hours, leading to a slowdown in the year-to-date utilization hours increase; nuclear power maintained stable output, with utilization hours increasing by 0.5% year-on-year; due to a drop in demand and the squeeze from new capacity output, thermal power output fell by 4.3% year-on-year, continuing the downward trend. Wind power utilization hours dropped by 14.8% year-on-year, remaining weak, while photovoltaic utilization hours increased by 3.0% year-on-year. Regarding electricity prices, in August, the electricity price in Guangdong Province fell to 0.414 yuan/kWh, a discount of 39 yuan per megawatt-hour compared to the benchmark price; in Jiangsu Province, the August electricity price slightly rose to 0.363 yuan/kWh, maintaining the upward trend since February. Risk factors: Electricity demand falling short of expectations; significant drop in market trading electricity prices; substantial rise in fuel costs; climbing costs for wind and solar power; aggravating renewable energy consumption risks; and lower than expected water inflow, etc.