Focus on Investment Opportunities of Thermal Power

The NDRC is demanding a reduction in coal prices or a change in market expectations. Yulin Coal Exchange Center (Weixin Public Number) news, recently six major power generation groups jointly submitted a letter, on which the Development and Reform Commission proposed two alternative paths to the coal mine side: first, to reduce the annual long-term price from 535 CNY/ton to 520 CNY/ton; second, to reduce the monthly long-term price of power coal to yellow interval, that is, to reduce the price of power coal of 5500 cards around Bohai Port to less than 600 CNY/ton. We believe that since this year, due to the impact of mining accidents, coal prices are in a strong state. From the perspective of futures, after the mining disaster, coal prices have changed their downward trend and started to rise again. As the main coal producing areas are affected by the shutdown of safety accidents in the first quarter, coal supply is generally tight. Spot prices and futures prices continue to be above 570 CNY/ton (the upper limit of the green range), while the thermal power sector has accumulated since this year. Huaneng International and Huadian International have fallen 16% and 22% respectively, while Winquan A has increased by + 18%. We believe that the NDRC's statement or attitude represents the policy attitude, the green zone is still to be realized, and the possibility of improvement in the thermal power industry is increased.

Power plant coal inventory continued to increase, coal decline continued. In January and April, the thermal power generation increased by -0.2% year on year, while in March, the thermal power generation increased by 1% year on year. The average utilization hours of thermal power equipment in China were 1413 hours, which was 13 hours lower than the same period last year. 2. This week (May 18-May 24, 2019), the stocks of the six major power plants rose by nearly 2% to 16.72 million tons, with daily consumption reaching 600,000 tons, still declining by about 24% compared with the same period last year, although recent weather shows signs of heating up. 3. Major power plants have reached 81.97 million tons on May 20, and their annual growth rate has further increased. Imports of power coal increased by 10.3% in March and April compared with the same period last year. The cumulative amount in January-April is still lower than 16.4% in the same period last year. 4. Influenced by El Nio, this year's rainfall is obviously more than that of previous years. We believe that, at present, the better situation of hydropower will probably continue in the future. 5. This week, the price of Qingang 5500KC dropped by 0.7% to 610 CNY/ton. Coal prices may have entered a downward period.

The adjustment of wind power price policy may slow down the speed of wind power installation. On May 24, the National Development and Reform Commission issued the Notice on Improving the Policy of Wind Power Price on the Internet: (1) The guiding price of newly approved projects (old projects remain unchanged) in land wind power resource areas of category I-IV was reduced by 5-6 cents in 2019 and 5 cents to 0.29 yuan, 0.34 yuan, 0.38 yuan and 0.47 yuan in 2020. In 2021, the newly approved onshore wind power project will be implemented in an all-round way to achieve parity in access to the Internet, and the state will no longer subsidize it. (2) The price of offshore wind power has been reduced from 0.85 yuan to 0.8 yuan in 2019 and 0.75 yuan/degree in 2020. Projects approved before the end of 2018 need to be connected to the grid before the end of 2021, otherwise they will be connected to the grid according to the electricity price of the year in which the grid is connected. The first batch of wind power and photovoltaic parity lists published by the NDRC totaled 20.76 million kilowatts. We believe that the power of wind power installed by enterprises will be slowed down or replaced by thermal power.

Investment Suggestion: We believe that coal prices are facing policy pressure. In fact, from the accumulation of fundamentals, coal prices have already entered the early stage of decline. In the case of such good demand and tight supply in January-April, inventory is still increasing. We believe that in the case of trade frictions or affecting demand, the NDRC has recently increased its nuclear production capacity and hopes that coal prices will fall, coal prices will fall. Increased probability. We think that the profit of thermal power industry is negatively correlated with coal price (coal is the main cost). The investment opportunities of thermal power industry mainly depend on the trend of coal price. At present, the profit of thermal power industry can be improved continuously and the investment value is high. We suggest that we pay more attention to it. Suggestions for individual stocks: Huaneng International, Construction and Investment Energy, Wanneng Electric Power, Funeng Stock, Guodian Electric Power, Baoxin Energy.