GF Securities released a research report stating that current approval for new coal-to-gas projects in Xinjiang is accelerating, while second-phase construction of existing projects is steadily advancing. The firm recommends focusing on the progress of highly profitable coal-to-gas projects, with particular attention to Jiufeng Energy (605090.SH). Green electricity subsidy distribution has significantly accelerated, with green power market sentiment driven by policy expectations during the earnings gap period. Investors should monitor developments in contract electricity prices, subsidies, and green certificates. This round of subsidy distribution will improve net asset quality, warranting focus on green power companies with high ROE and low PB ratios. The firm emphasizes that thermal power's generation value is weakening, while the enhancement of regulatory value represents an important factor for earnings outperformance, confirming the transformation of thermal power business models.
GF Securities' main viewpoints are as follows:
**Xinjiang Coal-to-Gas Projects Show Remarkable Benefits, Focus on Listed Company Project Progress**
Coal-to-natural gas converts coal into combustible gases such as methane through a series of chemical processes, featuring abundant raw material sources, low costs, near-zero emissions, and high thermal efficiency. China's natural gas external dependence exceeds 40%, making coal-to-gas projects beneficial for improving China's energy structure characterized by rich coal but scarce gas resources. China currently has approximately 7.5 billion cubic meters of coal-to-gas production capacity in operation, distributed across Xinjiang and Inner Mongolia. Xinjiang coal offers superior quality at low prices. According to reports on Xinjiang Qinghua's first-phase 1.375 billion cubic meter coal-to-gas project, with total investment of 12.5 billion yuan, the project generated pre-tax profits of 1.381 billion yuan in 2022. Despite gas price impacts, it still demonstrates excellent profitability. Current approval for new Xinjiang coal-to-gas projects is accelerating, while second-phase construction of existing projects progresses steadily. Focus on the remarkable progress of coal-to-gas projects, with particular attention to Jiufeng Energy.
**Green Power Subsidies Accelerate Significantly, Hydropower Performance Expected to Shift from Pressure to Growth**
This week, multiple companies announced subsidy progress. Solargiga Energy, GCL System Integration Technology, JinkoSolar, and Linyang Energy received subsidies of 1.68 billion, 939 million, 633 million, and 203 million yuan respectively in August, representing approximately 13% of their respective cumulative receivable subsidies as of the interim report. The amount distributed from the beginning of the year accounts for about 16% of cumulative receivable subsidies, indicating significantly accelerated subsidy distribution speed. Subsidy distribution will significantly improve green power companies' balance sheets and is expected to accelerate green power construction speed.
The firm maintains its previous view that green power market sentiment is driven by policy expectations during the earnings gap period. Focus on developments in contract electricity prices, subsidies, and green certificates. This round of subsidy distribution will improve net asset quality, warranting attention to green power companies with high ROE and low PB ratios.
Additionally, special attention to hydropower: Large hydropower faced significant electricity generation pressure in July-August due to declining water inflows, but this is nearing an end. Since September, water inflows at multiple hydropower stations have shown year-over-year growth, with low comparison bases from the same period last year. Therefore, the current period may be gradually entering an upward fundamental turning point, allowing for optimistic expectations for hydropower.
**High Performance + Stability + Market Value Management: Thermal Power Self-Validates Utility-Style Business Model Transformation**
In this year's interim reports, 7 thermal power companies explicitly stated improving per-unit electricity revenue through market-based trading, capturing profitable electricity generation, and optimizing bidding strategies. Despite pressure on utilization hours, actual per-unit electricity revenue exceeded expectations. The firm emphasizes that thermal power's generation value is weakening, while the enhancement of regulatory value represents an important factor for earnings outperformance, confirming the transformation of thermal power business models.
Consequently, thermal power companies' quarterly earnings stability is also increasing. Huadian Power International has maintained stable earnings of 1.6-1.8 billion yuan for six consecutive quarters excluding Q4. Simultaneously, the sector's free cash flow improved (reaching 38.9 billion yuan in H1), and net assets excluding perpetual bonds increased 4% compared to year-end (Datang International Power Generation and HUANENG POWER increased 10% and 8% respectively). Net asset growth combined with market value management's assessment of price-to-book ratios suggests thermal power trends will continue, with utility-style transformation imminent.
**Investment Recommendations:**
Focus particularly on Jiufeng Energy (605090.SH) catalyzed by coal-to-gas projects.
Recommended focus areas: (1) High-performing thermal power benefiting from transformation, combined with market value management: HUANENG POWER (600011.SH)/HUANENG POWER (00902), Huadian Power International (600027.SH)/Huadian Power International (01071), etc.; (2) Robust defensive dividend assets: Shenergy Company Limited (600642.SH), China Yangtze Power (600900.SH); (3) Policy-driven green power: High ROE, low PB CHINA LONGYUAN (00916), Fujian Energy (600483.SH).
**Risk Warnings:** Reform progress below expectations; excessive coal price increases; green power installation progress below expectations.