Analysis of the Impact of Coal Prices on Valuation Repair of A-share Thermal Power Enterprises and the Transformation from Strong Cyclical Stocks to Dividend Stocks

Based on data obtained from the brokerage API, I will provide you with a comprehensive assessment of the impact of coal price trends on the valuation repair of A-share thermal power enterprises and an analysis of the sustainability of thermal power’s transformation from strong cyclical stocks to dividend stocks.

The core profit logic of thermal power enterprises is

with coal prices. Coal costs account for 60-80% of the total costs of thermal power enterprises, so coal price fluctuations directly determine their profit margins.

• Coal price decline
  → Fuel cost reduction → Gross margin expansion → Net profit increase → Valuation repair
• Stable coal price
  → Enhanced cost predictability → Improved profit stability → Reduced risk premium → Valuation中枢 upward shift

From actual data analysis [0]:

• Current P/E: 8.38x (significantly lower than the utility industry average of 12-15x)
• P/B: 1.16x (close to net assets, with high safety margin)
• ROE: 14.63% (strong profitability)
• YTD 2024 stock price increase: 41.12%

• Current P/E:10.36x
• P/B:1.52x
• ROE:12.63%
• YTD 2024 stock price increase:82.37% (stronger performance)

[0]:

• PB/ROE Ratio:
  Wanneng Power is 7.93, Jingneng Power is12.03 (lower means higher cost-effectiveness)
• Both companies exhibit
  low PE, low PB, high ROE
  characteristics, with significant room for valuation repair

###1.3 Impact of Stable Coal Prices on Valuation

Based on your analysis framework, if coal prices remain stable or decline moderately:

1. Gross Margin Repair:
   Assuming stable coal prices, fuel costs of thermal power enterprises are locked in. With relatively rigid electricity prices, gross margins will remain stable or rise slightly.
2. Net Margin Increase:
   Wanneng Power’s net margin is8.14%, Jingneng Power’s is9.51%, both with room for further improvement.
3. ROE Expansion:
   Current ROE has reached 12-15%. If coal prices remain stable, ROE is expected to climb further to the 15-18% range.

• Historical Mean Reversion:
  The historical P/E中枢 of thermal power enterprises is10-15x. Currently, Wanneng Power’s 8.38x has 20-50% repair space.
• DCF Valuation Perspective:
  Enhanced profit stability → Reduced capital cost → Increased intrinsic value.
• Relative Valuation Advantage:
  Compared to utilities like hydropower and nuclear power, thermal power still has a valuation discount and convergence opportunities.

###2.1 Verification of Cash Flow Abundance

Your assertion that “the net operating cash flow of thermal power enterprises is usually more than twice the net profit” is reasonable:

• Depreciation and Amortization:
  Thermal power enterprises are capital-intensive with high depreciation costs (Wanneng Power’s financial attitude is classified as “conservative” with a high depreciation/capital expenditure ratio [0]).
• Financial Expenses:
  Interest expenses are cash outflows but not operating cash flows.
• Working Capital Changes:
  Operating liabilities like accounts payable may increase.

• Wanneng Power: EV/OCF (Enterprise Value/Operating Cash Flow) is 8.19x [0], indicating abundant operating cash flow.
• Jingneng Power: EV/OCF is7.79x [0], with excellent cash flow quality.
• Jingneng Power’s 2024 free cash flow is 1.272 billion yuan
  [0], with strong cash creation capacity.

###2.2 Dividend Capacity Assessment

1. Cash Flow Coverage:
   Operating cash flow/net profit >2x, theoretically supporting a dividend payout ratio of over50%.
2. Capital Expenditure Demand:
   New unit capital expenditures are large, but maintenance expenditures for existing units are relatively stable.
3. Debt Structure:
   Both companies have a debt risk rating of “high risk” [0], requiring a balance between dividends and debt repayment.

• Wanneng Power: Lower P/E (8.38x) with larger valuation repair space.
• Jingneng Power: Larger market capitalization (3.602 billion USD vs.1.999 billion USD) [0], better liquidity, but slightly higher valuation.

###3.1 Logical Basis for Industry Attribute Transformation

• Sharp coal price fluctuations → Severe profit volatility → High stock price volatility.
• Historical data shows: The beta coefficient of thermal power enterprises ranges from0.8-1.2, highly correlated with coal prices.

1. Improved Profit Stability:
   Stable coal prices + Electricity price marketization reform → Reduced profit volatility.
2. High Dividend Yield:
   Abundant cash + Increased dividend willingness → Enhanced dividend yield attractiveness.
3. Valuation System Reconstruction:
   From cyclical stock valuation (P/E5-8x) to utility valuation (P/E10-15x).

###3.2 Technical Verification of Trend Transformation

• Trend Status: Sideways (SIDWAYS)
• Key Prices: Support at $8.31, Resistance at $8.91
• Beta Coefficient:0.28 (significantly lower than the market, reduced volatility)
• Technical Signals: MACD bullish, KDJ bullish, but RSI indicates overbought risk.
• Moving Averages:
  20-day MA $8.31 >50-day MA $8.19 >200-day MA $7.55, showing a bullish排列.

• Trend Status: Uptrend (UPTREND, pending confirmation)
• Key Prices: Support at $4.89, Resistance at $5.43, Next target at $5.59
• Beta Coefficient:0.31 (also low, reduced volatility)
• Technical Signals: Buy signal on December22, but KDJ and RSI both show overbought warnings.
• **Moving Averages:**20-day MA $4.76 >50-day MA $4.76 >200-day MA $4.34, strong upward trend.

• Both companies’ beta coefficients have dropped to around 0.3, indicating
  significantly reduced systemic risk
  .
• Long-term upward trend established (3-year gain: Wanneng 103.23%, Jingneng68.65%) [0].
• Short-term technical indicators show overbought, need to警惕回调风险.

###3.3 Industry Performance Comparison

• Datang Power:
  +49.60% (best performance)
• Guodian Power:
  +35.05%
• Wanneng Power:
  +41.12%
• Jingneng Power:
  +82.37% (leading performance)
• Huaneng International:
  +1.12%
• SDIC Power:
  -0.22%
• Huadian International:
  -1.50%

1. Regional Differences:
   Different electricity prices, coal prices, and supply-demand patterns across regions.
2. Asset Quality:
   Differences in unit efficiency, debt ratio, and profitability.
3. Market Expectations:
   Different market judgments on the sustainability of profitability of different companies.

###3.4 Core Factors for Sustainability of Transformation

1. Improved Coal Supply-Demand Pattern:
   • Sustained growth in coal capital expenditure → Increased supply.
   • Increased inventory levels → Price stabilizer.
   • Diversified supply through imported coal.

2. Electricity Price Marketization Mechanism:
   • Improved coal-electricity linkage mechanism → Enhanced cost transmission capacity.
   • Promoted electricity marketization transactions → Improved price discovery mechanism.

3. Energy Transition Background:
   • Highlighted peak-shaving value of thermal power → Increased utilization hours.
   • Capacity price policy → Increased stable income.

4. High Dividend Attractiveness:
   • Low interest rate environment → Increased scarcity of high-dividend assets.
   • Long-term capital entry → Stable dividend targets are favored.

1. Coal Price Rebound Risk:
   • Supply-side contraction (work safety, environmental protection restrictions).
   • Unexpected demand (extreme weather, economic recovery).
   • Changes in imported coal policies.

2. Policy Risk:
   • Strengthened electricity price regulation → Compressed profit space.
   • Tightened environmental protection policies → Increased costs.
   • Carbon neutrality policy → Long-term demand constraints.

3. Intensified Industry Competition:
   • High growth rate of thermal power supply in Anhui Province in2026 → Downward pressure on electricity prices.
   • Increased proportion of new energy generation → Reduced thermal power utilization hours.

4. Company-specific Risks:
   • Subsidiary Dividend Policy:
     May affect the actual dividend capacity of the parent company.
   • Income Tax Preferential Policy:
     Expiration may affect net profit.
   • Debt Risk:
     Both companies have a debt risk rating of “high risk” [0], need to pay attention to financial leverage.

###3.1 Wanneng Power (000543.SZ)

• Lower valuation (P/E8.38x, P/B1.16x) [0].
• Higher ROE (14.63%) [0].
• Better PB/ROE ratio (7.93) [0].
• Beta coefficient only0.28, low volatility [0].

• Short-term technical overbought, RSI indicates risk [0].
• High growth rate of thermal power supply in Anhui Province in2026, electricity price under pressure.
• Negative free cash flow (-1.840 billion yuan) [0], large capital expenditure pressure.

• Suitable for investors with lower risk preference and pursuit of stable returns.
• Suggest waiting for a callback to the support level of $8.31 before entering [0].

###3.2 Jingneng Power (600578.SS)

• Largest gain in2024 (82.37%) [0], high market recognition.
• Clear upward trend, strong technicals [0].
• Positive free cash flow (1.272 billion yuan) [0], strong cash creation capacity.
• Larger market capitalization, better liquidity.

• Relatively higher valuation (P/E10.36x, P/B1.52x) [0].
• Technical indicators show overbought (KDJ, RSI warnings) [0].
• Resistance at $5.43, breakthrough requires volume [0].

• Suitable for investors who are optimistic about the transformation of the thermal power industry and pursue steady growth.
• Suggest paying attention to the breakthrough of the resistance level at $5.43. If the breakthrough fails, you can enter at the callback to the support level of $4.89 [0].

###3.3 Overall Industry Judgment

• Coal prices are expected to remain in a震荡偏弱 pattern.
• Profit improvement trend of thermal power enterprises continues.
• Valuation repair is in progress, but short-term technical overbought requires vigilance against callbacks.

• The logic of transformation from strong cyclical to dividend stocks is valid.
• High dividend allocation value is prominent.
• Pay attention to electricity price policies, coal price trends, and new energy development.

• Under the background of energy transition, the positioning of thermal power shifts from “main power source” to “regulating power source”.
• New revenue models such as capacity price and auxiliary services will reshape the profit structure.
• Under the long-term goal of carbon neutrality, thermal power enterprises need to accelerate transformation.

###3.4 Core Risk Warnings

1. Unexpected Coal Price Rebound:
   If coal prices return to the upward channel, thermal power profitability will deteriorate rapidly.
2. Policy Changes:
   Electricity price regulation, environmental protection policies, carbon neutrality policies, etc., may affect the industry outlook.
3. Overcapacity:
   Excessively fast growth of thermal power installed capacity in some regions, leading to increased downward pressure on electricity prices.
4. Technical Callback:
   Excessive short-term gains and technical overbought lead to callback risks.
5. Dividend Below Expectations:
   If the company increases capital expenditure or debt pressure, dividends may be lower than expected.

Stable or moderately declining coal prices are the core driving force for profit improvement and valuation repair of thermal power enterprises. Currently, both Wanneng Power and Jingneng Power have low valuations and high ROE characteristics, with 20-50% valuation repair space [0].

• Improved Profit Stability:
  Beta coefficient dropped to around0.3, volatility significantly reduced [0].
• Abundant Cash Flow:
  Operating cash flow covers more than twice the net profit, strong dividend capacity [0].
• Valuation System Reconstruction:
  The market gradually shifts from cyclical stock pricing to utility pricing.
• Long-term Trend Established:
  3-year gains are over70%, verifying the transformation logic [0].

Prioritize allocation of (stronger trend, better cash flow), and lay out at low prices (lower valuation, high safety margin). It is recommended to closely monitor coal price trends, electricity price policies, and changes in the company’s dividend policy.

[0] Jinling API Data