EB SECURITIES: Initiating a "Buy" rating on Huadian Power International Corporation (01071) A-shares and H-shares. The company's performance still has room for improvement.

EB SECURITIES released a report stating that it maintains the EPS (A-shares) forecast for Huadian Power International Corporation (01071; 600027.SH) for 2026/27/28 at 0.43, 0.48, and 0.53 yuan, with corresponding PE ratios at current stock prices (A-shares) of 11, 10, and 9 times, respectively. The EPS (H-shares) forecast is 0.38, 0.43, and 0.48 yuan, corresponding to PE ratios at current stock prices (H-shares) of 9, 8, and 7 times, respectively. Considering the clear growth in the companys future installed capacity and the expected infusion of units within the group, there is still room for improvement in the company's performance. This is the first coverage, and a Buy rating is given to Huadian Power International Corporation (A&H). EB SECURITIES' main points are as follows: Event The company released its 2026 mid-year report. In the first half of 2026, the company achieved revenue of 54.264 billion yuan, down 9.49% year-on-year; net profit attributable to shareholders was 3.105 billion yuan, down 20.47% year-on-year. In Q2 alone, the company achieved revenue of 23.791 billion yuan, down 9.56% year-on-year; net profit attributable to shareholders was 1.316 billion yuan, down 31.37% year-on-year. Power generation under pressure, electricity prices rising year-on-year In the first half of the year, the completed power generation amounted to 107.785 billion kWh, down 10.65% year-on-year; the main reasons for the decline are: 1) the favorable water supply situation in regions rich in hydropower resources, 2) the increase in installed capacity of renewable energy and new coal power units collectively impacting the power generation capacity of existing units, and 3) lower peak load demand due to lower summer temperatures in the areas where the companys units are located. However, electricity prices performed well, with an average on-grid electricity price of approximately 517.78 yuan/MWh, an increase of 0.19% year-on-year; the main reasons include: 1) increases in coal power capacity subsidies in various regions in 2026, and 2) key power plants concentrated in northern regions like Shandong, where regional electricity prices are relatively resilient during the nationwide decline in contracted electricity prices. As a result of the offsetting effects of quantity and price, the companys revenue has decreased. Declining standard coal prices and non-coal cost reductions enhance overall gross margin, while declining investment income suppresses the companys profitability In the first half of the year, the company's average standard coal input price was 833.75 yuan/ton, down 2% year-on-year; overall fuel costs decreased by 12.49% year-on-year, and operating costs decreased by 10.48% year-on-year; this led to a year-on-year increase of 0.98 percentage points in the company's gross margin, reaching 11.70%. The significant year-on-year decline in net profit attributable to shareholders in the first half was primarily due to the drag from investment income; the company achieved investment income of 1.265 billion yuan, a decrease of 1.216 billion yuan or 49%. The main reasons include: 1) the companys associate Huadian New Energy Group Corporation saw a year-on-year decline in wind and photovoltaic utilization hours, pressured on-grid electricity prices, and a drop in nuclear power investment income, with net profit down 33.7% year-on-year to 4.496 billion yuan, compounded by the company's ownership ratio dropping from 31.03% to 26.78%, leading to an equity method contribution of only 946 million yuan (a decrease of 914 million yuan year-on-year); 2) shareholdings in coal mine assets also suffered profit shrinkage due to falling coal prices. Installed capacity growth ensures long-term growth, with an emphasis on shareholder returns by implementing mid-term dividends As of the first half of 2026, the company has approved and under-construction units totaling 12,918 MW (coal power/ pumped storage of 4,020/8,898 MW respectively), and future traditional energy asset injections within the group also provide incremental growth opportunities. In addition, the company emphasizes shareholder returns, intending to implement a mid-term cash dividend of 0.09 yuan per share (tax included) for 2026. Risk warning: risks of tightening environmental protection policies, risks of replacement by renewable energy, risks of electricity market reforms.