Analysis of Valuation Revaluation Opportunities in the Thermal Power Industry: A Comparison with Electrolytic Aluminum Trends

Based on an in-depth analysis of the thermal power industry and the electrolytic aluminum industry, I will systematically evaluate the valuation revaluation opportunities brought by the reduction in capital expenditure and improvement in free cash flow of thermal power enterprises.

The electrolytic aluminum industry experienced a typical valuation revaluation cycle after supply-side reform:

• Supply-side Constraints
  : The 2017 supply-side reform restricted new capacity, and the industry’s capacity replacement policy was strictly implemented
• Peak Capital Expenditure Past
  : The industry has entered a mature stage, and expansion demand has slowed significantly
• Significant Improvement in Free Cash Flow
  : Operating cash flow exceeded capital expenditure, and FCF turned positive and grew rapidly
• Significant Increase in Dividend Payout Ratio
  : The industry’s dividend payout ratio increased from 30% to more than 50%
• Valuation Repair
  : PE increased from 10x to 15-20x, and the stock price of leading companies rose by 2-3 times

:

Dimension	Electrolytic Aluminum (2017-2020)	Thermal Power (2024-2025)
Supply-side	Capacity replacement policy, new capacity restricted	Strict control over new coal-fired power plants, renewable energy quota system
Capital expenditure	Peak past	Peak past, shifting to new energy investment
Cash flow	Free cash flow improvement	Clear path to free cash flow improvement
Valuation level	PE 10x historical low	PE 8-12x historical low
Dividend expectation	Expected increase in dividend payout ratio	SOE reform drives dividend payout ratio increase

:

Dimension	Electrolytic Aluminum	Thermal Power
Policy control	Higher degree of marketization	Electricity prices are subject to strong policy control
Price elasticity	High price elasticity	Limited electricity price elasticity, high stability
Industry attribute	Strong cyclical attribute	Strong bond-like attribute, public utility attribute
Growth space	Demand still has growth space	Power generation growth is restricted
Capital expenditure pressure	Relatively small	New energy transformation brings additional capital expenditure

According to brokerage data [0], the performance of major thermal power companies is as follows:

Company	Current Price	Growth Since 2022	Annualized Return	Annualized Volatility	Sharpe Ratio	Maximum Drawdown
Wanneng Power (000543.SZ)	CNY 8.82	+62.73%	+13.03%	35.01%	0.29	-36.35%
Huadian International (600027.SS)	CNY5.25	+6.71%	+1.65%	37.31%	-0.04	-35.28%
Huaneng International (600011.SS)	CNY8.09	-10.11%	-2.65%	36.69%	-0.15	-39.46%

:

• Wanneng Power Performs Best
  : Annualized return reaches 13%, Sharpe ratio of0.29, significantly outperforming peers
• Significant Differentiation Within the Sector
  : High-quality regional thermal power enterprises outperform national leaders by a wide margin
• Moderate Volatility
  : Annualized volatility of35-37%, consistent with the characteristics of the public utility sector

###2.2 Analysis of Valuation Indicators

According to the latest data [0]:

Company	Stock Price	EPS	PE	PB	Expected Dividend Yield	ROE
Wanneng Power	CNY8.82	1.05	8.4x	1.01x	4.76%	11.97%
Huadian International	CNY5.25	0.42	12.5x	1.50x	3.20%	12.00%
Huaneng International	CNY8.09	0.65	12.4x	1.49x	3.21%	12.00%

:

• PE is in the historical low range of 8-12x
• PB is generally around1x, with a margin of safety
• Expected dividend yield of3-5%, highlighting bond-like attributes

###2.3 Path to Free Cash Flow Improvement

Drivers of free cash flow improvement in the thermal power industry:

1. Peak Capital Expenditure Past
   • Strict control over new coal-fired power projects
   • Decline in technical renovation expenditure for existing units
   • Depreciation and amortization continue to generate cash flow

2. Stable Growth in Operating Cash Flow
   • The proportion of long-term agreements for thermal coal has increased to more than75%, stabilizing costs
   • The benchmark thermal coal price will remain at CNY675 per ton in 2026 (same as2025) [2]
   • Capacity price policy provides stable income supplement

3. Cash Flow Improvement Trend
   • The ratio of operating cash flow to capital expenditure continues to improve
   • Free cash flow turns positive and grows rapidly
   • Provides a basis for dividend increase

##3. DCF Valuation Model Analysis

Based on a simplified DCF valuation model considering free cash flow improvement [0]:

###3.1 Wanneng Power (000543.SZ)

• Current Price
  : CNY8.82
• Reasonable Value
  : CNY16.50
• Potential Growth
  : +87.05%
• Valuation Assumptions
  : Annual FCF growth of5-13% over the next5 years, WACC of10%

###3.2 Huadian International (600027.SS)

• Current Price
  :CNY5.25
• Reasonable Value
  :CNY6.60
• Potential Growth
  :+25.70%

###3.3 Huaneng International (600011.SS)

• Current Price
  :CNY8.09
• Reasonable Value
  :CNY10.21
• Potential Growth
  :+26.24%

:

• Conservative Estimate
  : PE repairs from8-12x to12-15x, with20-50% upside potential
• Optimistic Scenario
  : Dividend payout ratio increases to over50%, PE repairs to15x, with50-80% upside potential

##4. Can It Replicate the Electrolytic Aluminum Trend?

###4.1 Supported by Similar Logic

:

1. Supply-side Constraints
   → Capacity constrained, industry concentration increases
2. Free Cash Flow Improvement
   → Capital expenditure decreases, operating cash flow is stable
3. Valuation Repair
   → PE returns from historical low to reasonable range
4. Dividend Increase
   → Cash flow improvement drives dividend payout ratio up

###4.2 Constrained by Key Differences

:

Factor	Electrolytic Aluminum	Thermal Power	Impact
Price Elasticity	High (aluminum price fluctuates greatly)	Low (electricity price is controlled)	Thermal power profit elasticity is small
Policy Control	Weak	Strong	Thermal power profit stability is high but space is limited
Capital Expenditure	Decline	Structural adjustment	New energy investment brings new pressure to thermal power
Industry Attribute	Cyclical	Public utility	Thermal power valuation has relatively limited upside potential

: The thermal power industry can partially replicate the valuation repair logic of electrolytic aluminum, but the growth magnitude will be relatively moderate (leading electrolytic aluminum companies rose 2-3 times, thermal power is expected to rise50-80%), and it focuses more on stable returns rather than explosive growth.

##5. Investment Strategy and Risks

###5.1 Investment Recommendations

: Wanneng Power (000543.SZ)

:

1. Best Performance
   : Annualized return of13% since2022, far exceeding peers
2. Valuation Safety
   : PE 8.4x, PB1.01x, at historical low
3. Regional Advantage
   : Stable growth in electricity demand in Anhui Province, high unit utilization rate
4. Dividend Expectation
   : Expected dividend payout ratio increases from30% to over50%
5. Risk-Adjusted Return
   : Sharpe ratio of0.29, best risk-return ratio

:

• Holding Period
  :2-3 years of valuation repair period
• Expected Return
  : Annualized10-15% (dividend5-7% + valuation repair 5-8%)
• Position Allocation
  : Recommended as a defensive allocation, accounting for10-20% of the portfolio

###5.2 Valuation Revaluation Catalysts

1. Full Implementation of Capacity Price Policy
   : Provides stable income supplement for thermal power
2. Further Increase in Thermal Coal Long-Term Agreement Ratio
   : More stable cost side
3. SOE Reform Drives Dividend Payout Ratio Increase
   : Expected dividend payout ratio increases from30% to over50%
4. ESG Investment Drives Public Utility Valuation Revaluation
   : Global public utility valuations move upward

###5.3 Risk Factors

Risk	Impact	Response
Coal Price Fluctuation	Cost increases, profit decreases	Focus on long-term agreement ratio, select companies with strong cost control capabilities
Electricity Price Policy Adjustment	Income restricted, profit decreases	Capacity price policy provides buffer
New Energy Substitution	Long-term demand decline	Focus on the transformation progress of thermal power enterprises
Interest Rate Increase	Dividend yield attractiveness decreases	Thermal power’s bond-like attribute is greatly affected by interest rates

##6. Summary

###6.1 Core Conclusions

1. Can It Replicate the Electrolytic Aluminum Trend?
   • ✅
     Partially Yes
     : Similar logic of supply-side constraints + cash flow improvement + valuation repair
   • ⚠️
     Different Magnitude
     : Thermal power upside 50-80% vs electrolytic aluminum’s 200-300%
   • 📊
     Rhythm Difference
     : Thermal power focuses more on stable returns, while electrolytic aluminum focuses more on price elasticity

2. Valuation Revaluation Space Assessment
   • Current PE of 8-12x is at historical low
   • Target PE of12-15x (conservative estimate)
   • Upside potential: Wanneng Power +87%, Huadian/Huaneng +26%
   • Drivers: Dividend increase + valuation repair + performance growth

3. Investment Strategy
   • Preferred
     : Wanneng Power (best performance, high dividend expectation)
   • Holding Period
     : 2-3 years
   • Expected Return
     : Annualized10-15%
   • Positioning
     : Defensive allocation, bond-like asset

###6.2 Investment Clock

2022: Industry Bottom → High coal prices, widespread industry losses
2023: Policy Inflection Point → Capacity price policy, coal price decline, profit recovery
2024: Cash Flow Improvement → Capital expenditure decline, free cash flow turns positive
2025+: Valuation Repair → Valuation center moves upward, dividend payout ratio increases, PE from 10x to15x

Thermal Power Industry Investment Logic Framework: Feasibility Analysis of Replicating Electrolytic Aluminum Trends

Wanneng Power vs Huadian International vs Huaneng International: Comparison of Stock Price Trends, Trading Volume, Return Distribution, and Volatility

[0] Jinling API Data - Stock Prices, Financial Indicators, Market Data
[2] Bloomberg - “China’s Benchmark Power-Station Coal Price to Stay Flat in 2026” (https://www.bloomberg.com/news/articles/2025-12-08/china-s-benchmark-power-station-coal-price-to-stay-flat-in-2026)
[3] Bloomberg - “Coal Demand to Begin Gradual Decline Through 2030, IEA Says” (https://www.bloomberg.com/news/articles/2025-12-17/coal-demand-to-begin-gradual-decline-through-2030-iea-says)