Why did third-quarter profit fall sharply?

  • Huadian Power International’s net profit for the third quarter of 2026 was 803 million yuan, down 68% year on year and below HSBC’s expectations. The main pressures came from higher fuel costs and lower thermal power generation: unit fuel costs rose 23.5% year on year, while net thermal power generation fell 18%.
  • Coal-fired electricity prices continued to rise, but at a slower pace: they increased 2.6% year on year in the third quarter, down from 3.1% in the second quarter. HSBC attributed the slowdown to a decline in capacity payments per unit of capacity.
  • Operating cash flow fell less than profit: it declined 20% year on year in the third quarter to 6 billion yuan.

How much could electricity prices recover next year?

  • HSBC expects annual contract electricity prices in some provinces in eastern and southern China to rise by more than 10% in 2027. Company management also believes rising fuel costs could push up annual contract electricity prices in 2027.
  • Monthly trading prices provide a reference: in November, monthly electricity prices in Jiangsu and Guangdong were more than 15% and 20% above their respective local 2026 annual contract prices. Monthly prices and annual contracts cover different terms, and the actual increase in the latter still depends on the outcome of contract negotiations.

When might coal prices ease cost pressures?

  • HSBC believes coal prices have gradually retreated from a peak of around 1050 yuan per tonne as domestic coal production gradually recovers. However, it expects prices to remain range-bound in the near term amid peak winter coal demand in the fourth quarter of 2026.
  • The bank expects coal prices could fall significantly after the heating season ends in March 2027. If coal prices are higher than expected, annual contract electricity prices are lower than expected, or power plant utilization is weak, the earnings recovery will face pressure.

How has HSBC adjusted its earnings forecasts and target prices?

  • Taking into account fewer thermal power plant utilization hours and a higher fuel cost assumption, HSBC cut its 2026 net profit forecast by 22% to 4.011 billion yuan. It cut its forecasts for 2027 and 2028 by 5% each, to 5.863 billion yuan and 5.985 billion yuan, respectively.
  • HSBC maintained its buy ratings on the H-shares and A-shares and lowered their target prices from 5.30 Hong Kong dollars and 6.30 yuan to 5.20 Hong Kong dollars and 6.10 yuan, respectively.