In-depth Verification Report on Investment Logic of the Thermal Power Industry

Based on my in-depth data analysis, I now provide you with a comprehensive verification report on the investment logic of the thermal power industry.

• Although the market expects the logic of “reduced capital expenditure → improved free cash flow”, the free cash flow of leading thermal power companies in 2024 remains negative
• In contrast, Aluminum Corporation of China, the leading electrolytic aluminum company, has achieved positive free cash flow of 22.45 billion yuan[0]
• This indicates that
  the capital expenditure cycle of the thermal power industry may not have ended yet
  , or there are other capital consumption items

1. The logic of reduced capital expenditure for electrolytic aluminum has been fulfilled
   : Aluminum Corporation of China’s ROE reaches 19.77%, with low debt risk and abundant free cash flow
2. Thermal power is still in a capital-intensive period
   : Although the price-to-book ratio is low (Huaneng 0.86), free cash flow has not yet turned positive
3. Industry Structure Differences
   : The supply-side reform of electrolytic aluminum has been completed (production capacity red line), while thermal power still faces investment pressure from clean energy transformation

• 2021
  : Huaneng International +115.33% (electricity price increase dividend)
• 2022-2024
  : Aluminum Corporation of China cumulative +28.96% over three years, Huaneng International cumulative -33.47%
• 2025
  : Electrolytic aluminum continues its strength (+64.44%), thermal power follows the rebound (+23.32%)

1. Guodian Power Significantly Outperforms Peers
   : Cumulative return is more than 3 times that of other companies, possibly due to:
   • Better asset structure (higher proportion of new energy)
   • Lower leverage and financial costs
   • Regional layout advantages

2. High Volatility Across the Industry
   : Annualized volatility of 29-39% and maximum drawdown exceeding 30% indicate that
   the thermal power industry is still significantly affected by coal prices and electricity price policies

3. P/B Differentiation
   : Guodian Power’s P/B is 1.68 (premium), while Huaneng International’s is only 0.86 (discount), reflecting different market expectations for profit sustainability

Based on data analysis, the verification of the thermal power industry’s “reduced capital expenditure → improved free cash flow → shareholder returns” logic requires the following

This timing is important because:

1. Complete Annual Financial Data
   : Can verify whether the full-year free cash flow in 2025 turns positive
2. Clarification of Dividend Policy
   : The annual report will disclose the 2025 dividend plan
3. 2026 Capital Expenditure Plan
   : Management outlook will reveal capital expenditure trends
4. Effect of Coal-Power Linkage Mechanism
   : Actual impact of the 2025 full-year coal-power price linkage policy

• Observe whether quarterly free cash flow improves
• Pay attention to the impact of coal price trends on gross profit margin
• Monitor the progress of new energy transformation investment

• Verify whether free cash flow turns positive
• Verify whether dividend rate increases
• Verify whether capital expenditure growth slows down

• Confirm the trend of sustained improvement in free cash flow
• Confirm the establishment of shareholder return mechanism (dividends + buybacks)
• Confirm the optimization of industry structure (small thermal power plants exit)

• ✅
  Electrolytic Aluminum Case Proves
  : Supply-side reform + reduced capital expenditure can bring excess returns
• ⚠️
  Current Stage of Thermal Power
  : Still in the peak period of capital expenditure (new energy transformation), free cash flow has not yet turned positive
• ⏳
  Verification Timing
  :
  2025 Annual Report (March-April 2026)
  is the key verification window

• Preferred Target
  : Guodian Power (best performance, annualized return of 16.10%)
• Avoid Targets
  : Companies with high leverage, high volatility, and low ROE
• Key Indicators
  : Focus on companies with P/B <1, ROE>10%, and declining debt ratio

• Coal Price Volatility
  : The current cost center is rising; “coal prices are hard to rise or fall” is a neutral assumption. If coal prices rise sharply, profits will be eroded
• Electricity Price Policy Risk
  : Electricity is a livelihood industry, and the room for electricity price increases is constrained by policies
• New Energy Transformation Pressure
  : Thermal power companies need to invest heavily in clean energy, so capital expenditure is difficult to drop significantly in the short term
• High Volatility Risk
  : Annualized volatility of 30-40% requires strong risk tolerance

Based on data analysis, it is recommended:

1. Position Control
   : Thermal power allocation does not exceed 15-20% of the portfolio
2. Diversified Allocation
   : Choose 2-3 different companies to diversify individual stock risks
3. Batch Position Building
   : Do not all in; build positions in 3-4 batches, leaving room for adding positions

• Current: Can test with a small position (10-15% target position)
• After 2025 Annual Report
  : If verification passes, add positions to the target position
• If verification fails: Stop loss in time and switch to other opportunities

• Target Return: Over 15% annualized
• Stop Loss Line: -20% (considering high volatility)
• Signal: Deterioration of free cash flow for 2 consecutive quarters

1. Whether free cash flow turns positive
2. Whether the dividend policy improves
3. Whether capital expenditure has substantially decreased

[0] Gilin AI Data (Financial Analysis, Market Data, Price Trends, Technical Indicators)