Guangfa Securities: The issuance of national subsidies for green electricity has significantly accelerated, pay attention to the progress of listed companies' coal-to-gas projects

According to the Zhitong Finance APP, GF Securities has released a research report stating that the approval of new coal-to-gas projects in Xinjiang is accelerating, while the construction of phase II of existing projects is also steadily progressing. Attention should be paid to the progress of coal-to-gas projects with significant benefits, particularly focusing on JovoEnergy (605090.SH). The issuance of national subsidies for green electricity has significantly accelerated, and the green electricity market is driven by policy expectations during the performance gap period. Attention should be paid to the progress of contract electricity prices, subsidies, and green certificates. This round of subsidy issuance will enhance the quality of net assets, focusing on green electricity companies with high ROE and low PB. The report emphasizes that the generation value of thermal power is weakening, and the enhancement of adjustment value is an important factor for exceeding performance expectations, which also confirms the change in the commercial model of thermal power.

GF Securities' main viewpoints are as follows:

The benefits of coal-to-gas in Xinjiang are significant; pay attention to the progress of listed company projects.

Coal-to-natural gas converts coal into combustible gases such as methane through a series of chemical processes, with abundant raw material sources, low costs, near-zero emissions, and high thermal efficiency. China's dependence on foreign natural gas exceeds 40%, and coal-to-gas has a good improvement effect on China's energy structure, which is rich in coal but lacks gas. Currently, approximately 7.5 billion cubic meters of coal-to-gas have been put into production in China, distributed in Xinjiang and Inner Mongolia, where Xinjiang's coal is of high quality and low price. According to reports on the Xinjiang Qinghua phase I 1.375 billion cubic meters coal-to-gas project, the total investment amount is 12.5 billion yuan, generating a pre-tax profit of 1.381 billion yuan in 2022. Despite the impact of gas prices, it still reflects its strong profitability. Currently, the approval of new coal-to-gas projects in Xinjiang is accelerating, while the construction of phase II of existing projects is also steadily progressing. Attention should be paid to the progress of coal-to-gas projects with significant benefits, particularly focusing on JovoEnergy.

The issuance of national subsidies for green electricity has significantly accelerated; hydropower performance is expected to shift from pressure to growth.

This week, multiple companies announced the progress of national subsidies. In August, solar energy, Jinkai New Energy, Jinko Technology, and Linyang Energy received national subsidies of 1.68 billion, 939 million, 633 million, and 203 million yuan, respectively, accounting for about 13% of their respective cumulative receivables for national subsidies as of the mid-year report. The amount issued from the beginning of the year to date accounts for about 16% of the cumulative receivables for national subsidies, indicating a significant acceleration in the issuance speed. The issuance of subsidies will significantly improve the balance sheets of green electricity companies and is expected to enhance the speed of green electricity construction. The report maintains the previous viewpoint that the green electricity market is driven by policy expectations during the performance gap period, focusing on the progress of contract electricity prices, subsidies, and green certificates. This round of subsidy issuance will enhance the quality of net assets, focusing on green electricity companies with high ROE and low PB. Additionally, it is important to highlight hydropower: large hydropower was significantly pressured by reduced water inflow in July and August, but this is nearing its end. Since September, several hydropower stations have seen year-on-year increases in water inflow, and the low base from the same period last year means that the current situation may gradually enter an upward phase in fundamentals, allowing for an optimistic outlook on hydropower.

High performance + stability + market value management; thermal power is self-evidently transforming its commercial model into a utility model.

In this year's mid-year reports, seven thermal power companies clearly expressed their strategies to enhance revenue per kilowatt-hour through market transactions, optimizing pricing strategies, and seizing profitable electricity generation opportunities. Although the number of hours utilized has been pressured, the actual revenue per kilowatt-hour has exceeded expectations. The report emphasizes that the generation value of thermal power is weakening, and the enhancement of adjustment value is an important factor for exceeding performance expectations, which also confirms the change in the commercial model of thermal power As a result, the quarterly profit stability of thermal power companies is also increasing. China Huadian Corporation, excluding Q4, has maintained a stable profit of 1.6 to 1.8 billion yuan for six consecutive quarters. Meanwhile, the sector's free cash flow has improved (reaching 38.9 billion yuan in H1), and the net assets, excluding perpetual bonds, have increased by 4% compared to the end of last year (with Datang Power and Huaneng International increasing by 10% and 8%, respectively). The growth in net assets, combined with market value management's assessment of the price-to-book ratio, leads the bank to believe that the thermal power market will continue to evolve, and the utility transformation is about to occur.

Key focus: JovoEnergy (605090.SH) catalyzed by coal-to-gas projects.

Recommended focus: (1) High-performing thermal power benefiting from transformation, combined with market value management: Huaneng International (600011.SH)/Huaneng International Power Co., Ltd. (00902), China Huadian Corporation (600027.SH)/China Huadian Power Co., Ltd. (01071), etc.; (2) Stable defense of dividend assets: Sheneng Co., Ltd. (600642.SH), Yangtze Power (600900.SH); (3) Green electricity driven by policy: Longyuan Power (00916) with high ROE and low PB, Fuyuan Co., Ltd. (600483.SH).

Risk warning: Reforms may fall short of expectations; coal prices may rise excessively; green electricity installation progress may be lower than expected