Coal Price Trend Impact Assessment on Valuation of Thermal Power Stocks and Sustainability Analysis

Based on your provided investment views, I will conduct a systematic analysis from three dimensions: coal price, industry valuation framework, and company financial comparison.

• Web search shows that China’s coal production capacity has continued to expand over the past few years, leading to phased oversupply. Charts indicate that production capacity has exceeded demand since 2015 and maintained a downward trend after peaking in 2022 [1].
• Comprehensive energy industry information also suggests that prices of some bulk energy sources (e.g., LNG) have fallen to multi-year lows, reflecting the structural characteristics of overall weak energy demand and abundant supply [2].

• Coal accounts for approximately 60%-70% of thermal power costs; the decline in coal prices significantly improves fuel costs and profit margins [0]. In the coal price downward range, the unit fuel cost of thermal power decreases, driving improvements in gross profit and operating cash flow.
• Web search shows that the expectation of ‘difficulty in rising’ energy prices appears in some institutional reports, which is consistent with the supply-demand pattern of abundant production capacity and moderate demand [1].

• Cost-side improvement: The downward shift in coal price center directly contributes positively to profit margins and reduces profit volatility (narrowing fuel cost fluctuations) [0][1].
• Profitability improvement: WanNeng Power’s ROE reaches 14.63%, and Beijing Energy Power’s ROE is 12.63%, significantly higher than Huaihe Energy’s 6.46%, reflecting higher capital returns and quality amid industry boom improvement [0].
• Improved but not ‘stable’ cash flow: Beijing Energy Power’s latest free cash flow is positive (approximately +1.27 billion yuan), while WanNeng Power’s latest free cash flow is negative (approximately -1.84 billion yuan), indicating that the two still have differences in capital expenditure, production capacity rhythm, etc., and are not all in a state of sufficient dividends [0].

• Valuation framework: Using the Discounted Cash Flow (DCF) method, the key lies in future profit growth (g) and equity capital cost/discount rate (k). The decline in coal prices brings improvements in profitability and predictability, which helps to increase expectations of sustainable growth rate g or提升 valuation at the same k (supporting multiples such as P/E and P/B) [0].
• Sustainability: If the pattern of ‘coal prices being difficult to rise’ continues (abundant supply + stable demand) and the electricity price mechanism is relatively stable, then profit volatility will decrease, cash flow quality will improve, and the ‘dividendization’ logic has fundamental support. However, attention needs to be paid to variables such as electricity price linkage and regulation, regional supply-demand and electricity price suppression risks, and capital expenditure rhythm [1][2].

• Since 2023 (as of 2025-12-27) [0]:
  • WanNeng Power: Cumulative increase of approximately +96.9% (from early 2023 to end of 2025)
  • Beijing Energy Power: Cumulative increase of approximately +66.6%
  • Huaihe Energy: Decline of approximately -17.8% in the past year
• 2025 YTD return [0]:
  • Beijing Energy Power: +57.3%
  • WanNeng Power: +14.7%
  • Huaihe Energy: -0.3%

• WanNeng Power: Low P/E (8.38x) + High ROE (14.63%) = Stronger mindset target, reflecting advantages in profitability and valuation cost-effectiveness; however, negative free cash flow requires attention to constraints on dividends from capital expenditure and payment collection rhythm [0].
• Beijing Energy Power: Leading increase in 2025, with high market recognition; at the same time, the latest free cash flow is positive, which is more in line with the ‘cash cow’ dividend attribute [0].
• Huaihe Energy: High P/E (18.02x) + Low ROE (6.46%) + Negative return in the past year, overall cost-effectiveness and profit quality are weak, consistent with the weaker mindset judgment [0].

• The increase in new installed capacity and supply in the region may suppress electricity prices; continuous tracking of intra-provincial power supply and demand and market-oriented electricity price changes is needed [1].

• If supply-side contraction, unexpected demand, or energy policy changes occur, the rise in coal prices will erode profit margins and amplify performance volatility [1][2].

• WanNeng Power’s current free cash flow is negative, so dividend capacity is restricted; Beijing Energy Power’s is positive, so the dividend attribute is more stable. Continuous tracking of capital expenditure progress and payment collection quality is needed [0].

• Driven by AI electricity demand in 2025, the global energy sector (including power, nuclear power, renewable energy) generally rose, and the overall valuation level has increased [3]. As a ‘base load + flexibility’ resource, thermal power’s positioning in green transformation and policy support (such as capacity electricity price, flexibility compensation) will be key variables for long-term valuation [2][3].

• The decline in coal prices improves profit margin and cash flow expectations, which is the key premise for thermal power valuation repair and ‘dividendization’ discussions in recent years [1][2]. From the valuation framework perspective, the improvement in profitability and predictability helps to support higher valuations (such as P/E and P/B), but dividend aspects need to be combined with free cash flow performance.

• Support ‘stronger mindset’ (WanNeng/Beijing Energy): Lower valuation and higher ROE, combined with declining coal prices, have dual elasticity of profit repair and valuation regression [0]. Beijing Energy Power’s positive free cash flow further strengthens the dividend attribute [0].
• Cautious about ‘weaker mindset’ (Huaihe): High P/E and low ROE combined with weak market performance, low cost-effectiveness [0].

• If coal prices remain low or fluctuate within a range, and the electricity price mechanism does not change significantly unfavorably, the profit improvement and valuation repair of thermal power enterprises have sustainability. However, it is necessary to track free cash flow, dividend rate, and capital expenditure rhythm to convert the ‘expected dividend attribute’ into verifiable returns [0][1].

• Prioritize allocating Beijing Energy Power: Balances elasticity and cash flow quality, with a clearer dividend attribute [0].
• Increase allocation of WanNeng Power: Low valuation + high ROE, with greater elasticity in the coal price downward cycle; attention needs to be paid to the repair rhythm of free cash flow [0].
• Avoid or underallocate Huaihe Energy: Current valuation and profit quality lack attractiveness [0].

• Top left: Relative performance of stock prices since 2023 (normalized to 100) [0].
• Top right: Comparison of key financial indicators (P/E, P/B, ROE) [0].
• Bottom left: Market value comparison (unit: 100 million yuan) [0].
• Bottom right: Annual return comparison (2025 YTD and 3-year cumulative) [0].

[0] Jinling API Data (real-time quotes, company overview, financial analysis, historical stock prices, etc.)
[1] Bloomberg/WSJ - Charts and analysis on China’s coal production capacity, supply and demand, and price trends: https://www.bloomberg.com/graphics/2025-china-economy-deflation (reference charts and descriptions: coal production capacity has exceeded demand since 2015, and the price downward trend)
[2] Bloomberg - China’s LNG price falls to five-year low, reflecting weak energy demand and abundant supply: https://www.bloomberg.com/news/articles/2025-12-23/china-s-domestic-lng-price-falls-to-five-year-low-on-weak-demand
[3] WSJ - AI electricity demand drives global energy stocks to rise generally: https://cn.wsj.com/articles/why-the-everyones-a-winner-energy-trade-cant-last-forever-c3679d4c

(Note: Before making a formal investment decision, it is recommended to continue verifying with the latest financial reports, company announcements, and industry policies.)