Rating: Neutral ｜ Target Price: RMB 15.5–17.0 (base-case fair value range, midpoint RMB 16.25) ｜ Current price RMB 15.88 (closing price, 2026-10-28) ｜ Margin of safety: -2.4% (negative; base-case fair value lower bound below current price) ｜ Time horizon: 12 months ｜ Total market cap RMB 127.1 billion (8.004 billion shares outstanding)
SDIC Power is the controlling shareholder (52%) of the sole developer of the Yalong River basin. Hydropower contributes roughly 75% of core-business gross profit, and SDIC Power's equity interest in Yalong River accounts for 64.9% of net profit attributable to shareholders—a classic "basin monopoly + low marginal cost" quality hydropower operator, further supported by 7.02 GW of approved projects under construction (3.72 GW conventional hydro + 3.30 GW pumped storage) and a 2.4 GW pipeline awaiting approval for long-term growth. However, the current price of RMB 15.88 already fairly prices current earnings and bond-like characteristics: PE (TTM) 18.3x, PB 1.71x (near a one-year high), forward dividend yield ~3.1%. The probability-weighted fair value of RMB 15.7 is essentially flat with the current price, yielding a negative margin of safety. Key constraints: ① Average on-grid tariff is in a mild downtrend—Q3 2026 saw a -5.09% YoY decline in a single quarter; the 2027 annual long-term contract and Yalong River outward-transmission tariff renegotiation (Nov–Dec 2026) is the single largest variable determining direction; ② Qinhuangdao coal prices up +48.5% YTD are squeezing the profitability of the thermal segment, which accounts for ~30.6% of installed capacity (our estimate); ③ Minority interests take 45% of net profit, structurally diluting attributable earnings. Strategically: holders may continue to hold for dividends (the 55% payout commitment is credible); new capital is advised to wait for a move below RMB 15.5 or a stabilization signal in 2027 annual long-term contract tariffs before entering; for pure income needs, China Yangtze Power (payout ratio ≥70%, dividend yield ~3.4%) is superior.
Opportunity characterization: a conditional opportunity, not an immediate one. Odds over the next 12–24 months depend on dual confirmation from two sets of signals: the outcome of 2027 annual long-term contract/outward-transmission tariff negotiations in Nov–Dec 2026, and the low-base rebound in Yalong River generation volumes in H1 2027. Evidence strength rating: B (key facts verified against original disclosures, but the core expectation gap—the long-term contract tariff—can be neither confirmed nor refuted before signing).
Primary share-price drivers (ranked by importance):
Verifiable expectation gap: Sell-side consensus FY2026 EPS of RMB 0.93 (implying Q4 2026 attributable net profit of RMB 1.37 billion, +57% YoY) is optimistic; our own estimate is EPS of RMB 0.875–0.906 (3–6% below consensus), with the core divergence in tariff assumptions—if long-term contract terms come in weak, consensus faces further downward revision risk (already down 1.1% over the past 90 days); if tariffs stabilize alongside abundant water inflows, there is room for re-rating toward the discount rate (roughly +12–18%).
Key falsification conditions: 2027 long-term contracts broadly cut by RMB 0.02–0.03/kWh (attributable profit -RMB 1.3 to -1.9 billion), Yalong River volumes below -15% YoY for two consecutive quarters, or the social security fund's 6.9% stake disclosing a reduction plan before its lock-up expiry in March 2028.
Yalong River's net profit per kWh is ~RMB 0.107, positioning it at the lowest end of the industry cost curve; the Lianghekou multi-year regulation reservoir narrows year-to-year volume volatility (despite water inflows ~20% below normal in H1 2026, Yalong River net profit fell only -7.3%, with volume declines offset by tariff increases). Two structural constraints should be noted: first, 45% minority interests (Sichuan Investment Energy holds 48%) systematically dilute attributable profit elasticity; second, expansion-phase capex keeps free cash flow far below operating cash flow (FY2023 FCF was only RMB 1.015 billion); the improvement to FY2025 FCF of RMB 10.132 billion included one-off recovery of legacy Yangfanggou receivables and should not be extrapolated linearly.
Q3's high volume growth did not translate into positive profit growth—Q3 attributable net profit was still -6.86% YoY, as the single-quarter average on-grid tariff of RMB 0.317/kWh (-5.09%) and declining investment income (-43.5% YoY for the first three quarters) eroded margins. Annualizing the first three quarters, we forecast FY2026 attributable net profit of RMB 7.0–7.25 billion, -5.3% to -1.9% YoY; in H1 2027, given the low base from Yalong River's -20% volumes in H1 2026, the direction of a sharp YoY attributable-profit recovery is certain, but the magnitude depends entirely on the yet-unsigned 2027 annual long-term contract tariffs; the realization pace of the recovery must be verified month by month via operating data from January 2027 onward.
Per the annual report, the Yalong River basin has 3.72 GW of approved conventional hydro under construction (Mengdigou 2.4 + Kala 1.02 + Yagen I 0.3) plus 3.3 GW of pumped storage (Lianghekou mixed pumped storage 1.2 + Daofu 2.1), with the 2.4 GW Yagen II pending approval counted separately. After conventional hydro commissioning (Kala 2029; Mengdigou first unit 2031), combined incremental annual generation is ~16.2 billion kWh; at an estimated attributable contribution of ~RMB 0.05/kWh, post-ramp-up incremental annual attributable profit is ~RMB 0.7–0.9 billion (by 2032), equivalent to 10–13% of 2026E attributable profit; pumped storage contributes ~RMB 100 million/year under the capacity tariff model. Our estimate values this growth option at ~RMB 3–5 per share in a neutral scenario (own model, discounted at 6.2% with ramp-up years and capex timing; no external sell-side anchor cross-validation). The current price's implied zero-growth free cash flow already exceeds normalized earnings, so the market is paying little for this option—and the option does not pay off until after 2029, with long duration and only modest discounted present-value contribution.
Back-solving from the current price implies zero-growth FCFE of ~RMB 7.9 billion, ~15% above the three-year average of adjusted attributable profit of RMB 6.8 billion—the market is paying full price for current earnings and bond-like characteristics, and little for the post-2029 growth option. The current PB is near a one-year high (52-week range RMB 12.75–16.26; the current price is only -2.3% below the peak), and upside requires catalysts in earnings or discount-rate narrative. The base-case fair value is RMB 15.5–17.0 (midpoint RMB 16.25, +2.3% vs. current); probability-weighted fair value of RMB 15.7 is essentially flat with the current price. The current price sits slightly below the distribution center: odds are nearly symmetric, slightly unfavorable (bear-case midpoint -22.9% / bull-case midpoint +22.8%, but bear-case probability of 30% > bull-case 20%).
Tariff declines are broad-based and mild, not a hydropower-wide plunge: Yalong River outward-transmission tariffs rose +2.34% in 2025 against the trend (via the inter-governmental agreement mechanisms of the Yazhong DC line to Jiangxi and the Jinsu DC line to Jiangsu), and H1 2026 tariffs remained positive YoY. The true risk window is the Nov–Dec 2026 renegotiation of 2027 annual market-based long-term contracts and outward-transmission tariffs—under Sichuan's implementation plan for Document No. 136, incremental renewable mechanism tariffs were bid as low as RMB 0.2/kWh, and the downward price anchor could spill over. Quantified sensitivity: every RMB 0.01/kWh decline in the company's overall tariff cuts attributable net profit by ~RMB 630 million (-8.6%); a broad 2–3 fen decline would reduce attributable profit by RMB 1.3–1.9 billion, invalidating the bond-like valuation anchor (3.2% dividend yield) and compressing valuation toward 14–15x PE. On the thermal side, the coal price rebound (Qinhuangdao Q5500 +48.5% YTD to RMB 1,013/ton) is a secondary variable: every RMB 100/ton rise in blended standard coal price cuts attributable profit by ~RMB 830 million, hedged by capacity tariff increases (RMB 165/kW per year) and long-term contract fulfillment.
The company has committed that annual cash dividends for 2024–2026 will "in principle be no less than 55% of distributable profit in the consolidated statements for that year"—pegged to distributable profit rather than attributable net profit and with "in principle" language, yet execution has precisely delivered 55% for three straight years. Structural facts to acknowledge: even if Yalong River net profit recovers to RMB 9–10 billion, roughly RMB 4.3–4.8 billion per year still goes to Sichuan Investment Energy; the introduction of CATL into Yagen II (10% at the project level) signals that new projects will continue the joint-development dilution, with the company's attributable interest in new capacity falling to ~46.8%, meaning mid-term attributable profit growth will be systematically below consolidated net profit growth. In addition, the lock-up expiry on 2028-03-06 for the social security fund's 550 million shares (6.88% of total share capital) is a potential supply shock in the latter part of the window; the controlling shareholder's RMB 150 million share purchase plan covers only ~1.7% of its market value.
| Metric | FY2023 | FY2024 | FY2025 | 2026Q1-Q3 |
|---|---|---|---|---|
| Revenue | 567.12 | 578.19 | 530.14 | 395.24 |
| Net profit attributable to shareholders | 67.05 | 66.43 | 73.93 | 60.71 |
| Adjusted attributable net profit | 65.89 | 64.90 | 73.55 | 60.16 |
| Gross margin (est.) | 36.08% | 37.48% | 41.14% | 40.94% |
| Attributable net margin | 11.82% | 11.49% | 13.95% | 15.36% |
| Operating cash flow | 212.68 | 246.57 | 315.70 | 199.90 |
| Free cash flow (est.) | 10.15 | 28.91 | 101.32 | 85.25 |
| Cash and equivalents (period-end) | — | — | 231.13 | 191.61 |
| Interest-bearing debt (period-end, est.) | — | ~1,570 | 1,616.43 | 1,599.18 |
| Debt-to-asset ratio (period-end) | 63.18% | 63.22% | 60.52% | 59.25% |
| Net debt/EBITDA (est.) | — | — | ~5.1x | — |
Note: Free cash flow = operating cash flow - cash paid for fixed assets, etc.; interest-bearing debt includes short-term borrowings, current portion of long-term debt, long-term borrowings, bonds payable, lease liabilities and long-term payables (plus perpetual bonds of RMB 5.697 billion classified as equity); net debt/EBITDA is estimated as FY2025 period-end net debt of RMB 138.5 billion / EBITDA of ~RMB 27.35 billion (total profit + depreciation & amortization); FY2023/FY2024 cash and interest-bearing debt details were not extracted this time. Weighted ROE is not shown as it could not be verified against the original text.
Reasons for metric changes (items with YoY ≥ ±20%): ① FY2025 revenue -8.31%: management attributed this to lower on-grid volumes (-8.12%) combined with lower tariffs (-1.11%), due to below-normal water inflows; ② FY2025 operating costs -13.68%: management attributed this to falling coal prices and continued cost control (core-business costs -13.78%); ③ FY2025 operating cash flow +28.03%: management attributed this to the one-off recovery of legacy Yangfanggou receivables plus reduced procurement spending on falling coal prices; ④ FY2025 period-end cash +127.26%: receipt of RMB 7 billion from the social security fund private placement and higher performance deposits; ⑤ FY2025 free cash flow +250%: one-off OCF boost with only slightly lower capex—contains unsustainable elements; ⑥ 2026Q1-Q3 operating cash flow -16.96%: not explained by the company in the quarterly report (cash paid for goods purchases +15.2% in the same period, consistent with rising coal prices).
Revenue for the first three quarters was RMB 39.524 billion (-2.58%), attributable net profit RMB 6.071 billion (-6.84%), adjusted profit RMB 6.016 billion (-7.46%). Q3 alone: revenue RMB 15.638 billion (+5.12%), attributable profit RMB 2.536 billion (-6.86%), a sharp sequential rebound. The structure shows a classic "volume up, price down" pattern: Q3 controlled generation was 54.857 billion kWh (+14.55%), of which Yalong River was 33.700 billion kWh (+19.04%, marked recovery in the main flood season after below-normal H1 inflows) and solar +46.54%; but the Q3 single-quarter average on-grid tariff was RMB 0.317/kWh (-5.09%), so high volume growth did not translate into positive profit growth; investment income for the first three quarters also fell -43.5% YoY (unexplained separately in the quarterly report; the announcement notes "not applicable"). Against sell-side consensus FY2026 attributable profit of ~RMB 7.44 billion, Q4 would need to deliver RMB 1.37 billion (+57% YoY) to hit the mark, while Q4 faces fuel cost pressure from coal at RMB 1,013/ton—consensus faces downward revision risk. Our own full-year attributable profit estimate is RMB 7.0–7.25 billion (-5.3% to -1.9%); we judge "a weak first three quarters, with a Q4 recovery unlikely to beat expectations."
Business Model in Brief: Asset-heavy power operator — hydro at the core (52% controlling stake in Yalong River; hydro accounts for 42.6% of installed capacity and contributes roughly 75% of gross profit from core operations) + efficient coastal thermal power (~30.6% share, per this report's estimates; 1,000 MW-class units make up 61.35% of thermal capacity) + wind/solar renewables (~25.4% combined, estimated). Revenue is highly recurring (grid unified procurement and market-based long-term contracts), but the company has no independent pricing power: tariffs are set by government approval and market trading, with average on-grid tariffs declining moderately year after year. The hedge is the multi-year regulation storage at Lianghekou, which raises the time-of-day value of generation (more output during high-priced dry-season hours).
Cash Content of Earnings: FY2025 operating cash flow was RMB 31.57 billion, covering consolidated net profit 2.35x (industry norm for the high-depreciation hydro model; the ratio would be ~4.3x using net profit attributable to parent as the denominator, but since OCF includes minority shareholders' share, that measure overstates — this report consistently uses consolidated net profit for comparability). Free cash flow is dominated by the pace of capex: FCF/net profit attributable to parent rose from just 0.15 in FY2023 to 1.37 in FY2025, though FY2025's improvement includes a one-time collection of legacy Yangfanggou receivables; planned infrastructure investment of RMB 24.45 billion in 2026 will again compress FCF — during the expansion phase, book-to-free-cash conversion is being absorbed by construction-in-progress; this is growth investment rather than a quality issue, but it means dividends depend on operating cash flow coexisting with rolling financing. On recurring earnings, the gap between non-recurring-adjusted and attributable net profit is minimal (FY2025: RMB 7.355 billion vs 7.393 billion, a 0.5% difference) — no one-off window dressing.
Return on Capital: FY2025 ROIC is estimated at ~4.7% (NOPAT of RMB 13.461 billion / invested capital of ~RMB 285.4 billion), below the commonly used WACC estimate for utilities (the company's 2025 perpetual bond issuance carried rates of only 1.90%–2.30%; all-in equity cost puts the hurdle at ~5–6%) — the low return is mainly because RMB 138.8 billion of construction-in-progress generates no returns pre-commissioning, a structural feature of the growth phase rather than value destruction; once commissioned, incremental capital returns (Mengdigou etc., estimated at RMB 0.05 net profit per kWh) will be significantly above the current average.
Capex Quality: FY2025 cash paid for asset purchases was RMB 21.438 billion, 2.0x depreciation and amortization, almost entirely growth investment (372万千瓦 conventional hydro under construction + 330万千瓦 pumped storage + 440.66万千瓦 thermal under construction + wind/solar). The company does not disclose a maintenance/growth split, so maintenance capex cannot be determined separately, but hydro dams/turbines have lifespans far longer than depreciation periods, so actual maintenance needs are low. FY2025's high OCF growth includes one-off collections (see above).
Moat and Quality Red Flags: Moat = exclusive river-basin resources (one basin, one operator) + zero fuel cost + Lianghekou multi-year regulation. Three red flags — ① minority shareholders take 45% of profit (structural); ② continuous equity dilution: GDR in 2020 plus two private placements in 2021/2025, total share count +14.9% over five years; EPS growth (FY2025 +5.73%) trails attributable profit growth (+11.30%); ③ top five customers account for 80.88% of sales (grid customer concentration — industry norm but worth noting).
Track record vs. words: pragmatic, leaning conservative. ① The 2024 annual report pledged RMB 4.56 billion of equity investment plus RMB 30.7 billion of infrastructure investment for 2025; actual execution was RMB 3.031 billion of equity investment (-14.39%) and RMB 21.438 billion of asset purchases — under-executed; ② the 2023 annual report pledged RMB 6.41 billion of equity investment for 2024, actual RMB 3.54 billion — two consecutive years of slack (the company itself calls it "built-in headroom in capital deployment") — investment plans are conservative rather than inflated, with no record of broken promises; ③ the company gives no external earnings guidance and makes no high-profile forecasts.
Shareholder friendliness: neutral. Three years of precisely delivered dividend commitments (55% payout ratio, RMB 11.4 billion cumulative dividends), but the payout ratio is below China Yangtze Power's ≥70% commitment; no buybacks; a history of active equity financing (GDR + two placements diluting ~14.9% in total); in 2025 the company introduced the National Social Security Fund as a strategic investor (RMB 12.72/share, 36-month lock-up) via a RMB 7 billion private placement to fund Mengdigou/Kala construction — growth financing in exchange for construction capital: dilutive to existing shareholders, cheap capital for the projects; two sides of the same coin.
Risk signals: ① New senior executives appointed in 2026-09 (normal rotation); ② guarantees for the Indonesia Batang project (interim report disclosed total guarantees to subsidiaries of RMB 7.327 billion, 10.18% of net assets, of which ~RMB 5.67 billion to counterparties with debt-to-asset ratios above 70%); ③ controlling shareholder SDIC Group's RMB 150 million share purchase plan began 2026-07 (as of October, ~86% of the amount executed, stake raised to 47.89%) — more of a signal than a meaningful capital inflow.
FY2025 core-business segments (revenue share / gross margin / YoY):
| Segment | Revenue (RMB 100M) | Revenue Share | Gross Margin | Revenue YoY | One-line Business Logic |
|---|---|---|---|---|---|
| Hydro | 258.63 | 48.8% | 62.7% | -2.86% | Yalong River cascade + Dachaoshan/Xiaoxia; costs are only depreciation and labor; water inflow determines volume |
| Thermal | 176.89 | 33.4% | 20.7% | -18.76% | Coastal high-parameter coal units; profit = tariff − coal price; falling coal prices drove 2025 recovery |
| Wind | 26.01 | 4.9% | 42.3% | -4.69% | Curtailed load and falling tariffs weigh; gross margin down three years running |
| Solar | 22.47 | 4.2% | 29.3% | +6.04% | Kela and other base projects ramping up (generation +35.68%) but falling tariffs erode margins |
| Others (heating/construction) | 38.01 | 7.2% | -6.18% | -5.57% | Indonesia Batang construction revenue shrinking as completion nears |
Hydro is the profit engine: hydro gross profit of RMB 16.209 billion was 74.9% of the combined gross profit of the four power segments — less than half of revenue but a gross margin three times thermal's. A 42-percentage-point gross margin gap (hydro 62.7% vs thermal 20.7%) is rooted in the different nature of the businesses: hydro's marginal cost is near zero and its costs, mostly depreciation, decline over time; thermal is essentially a "coal price − tariff" spread-processing business with no cost-advantage moat, with earnings fluctuating along the coal cycle (thermal gross margin FY2023 10.8% → FY2025 20.7%, driven entirely by falling coal prices). Wind/solar gross margins have fallen for three straight years (wind 57.3%→42.3%, solar 54.8%→29.3%); after Document No. 136 pushed renewables fully into the market, the segment has entered a "volume up, profit down" phase, with FY2025 blended wind/solar tariffs down -14.5% YoY.
Accounting red flags: based on the financial statements reviewed here (FY2023–FY2025 annual reports, 2026 quarterly reports and the Q3 report), no obvious accounting manipulation was found — goodwill of only RMB 106 million (0.14% of attributable net assets), intangibles at 2.1% of assets, a 0.5% gap between non-recurring-adjusted and attributable profit. The statements are clean.
Cross-period consistency (three trend changes, each consistent with management's explanations):
One unexplained divergence: 2026Q1–Q3 generation +0.21% while attributable profit -6.84%; Q3 generation +14.55% while attributable profit -6.86% — the volume-price divergence can be explained by tariffs (-5.09%) and investment income (-43.5%), but the company entered "not applicable" in the quarterly report's explanation field for the changes, offering no formal explanation — a disclosure flaw rather than a sign of manipulation.
Current market data: price RMB 15.88 (2026-10-28 close), market cap RMB 127.111 billion; PE(TTM) 18.3x (historical percentile: ~51% over 5 years, ~75% over 10 years; percentile statistics are sensitive to window and earnings definitions — for reference only); PE(FY2025) 17.2x; PB 1.71x (on attributable equity of RMB 74.478 billion; 1.85x excluding RMB 5.6 billion of perpetual bonds; third-party data show 1.92x, near a 1-year high) — the price sits near the upper end of the 52-week range (RMB 12.75–16.26), -2.3% from the high; FY2025 dividend yield 3.20%; forward yield ~3.10% on 2026E attributable profit of RMB 7.0–7.25 billion at a 55% payout. Earnings are broadly normal (FY2025 non-recurring-adjusted profit is close to mid-cycle levels, though -6.84% over the first three quarters of 2026 makes TTM slightly inclined to overstate current earnings), so the PE percentile can serve as a reference.
Peer comparison (2026-10-28 close basis):
| Company | PE(TTM) | PB | FY2025 Attributable Growth | ROE | Dividend Yield | Key Difference vs SDIC |
|---|---|---|---|---|---|---|
| SDIC Power | 18.3x | 1.71x | +11.3% | — (see note) | 3.2% | Hydro/thermal/wind/solar mix + 45% minority dilution |
| China Yangtze Power | 19.9x | 3.33x | +6.2% | 15.99% | ~3.4% | Pure-hydro leader, six-reservoir joint dispatch, payout ≥70% |
| Huaneng Hydropower | 23.0x | 2.68x | +2.5% | 10.93% | ~2.2% | Lancang River operator; greater pressure from -5.54% tariffs in 2025 |
| Chuantou Energy | 17.5x | 1.85x | +5.5% | 10.93% | ~2.8% | 48% shadow of Yalong River; no operating leverage |
| Guiguan Power | 18.1x | 3.86x | +43.6% | 16.54% | ~2.3% | Single-basin Hongshui River, high elasticity, small-cap premium |
SDIC's PB is ~37% below the peer median (~2.7x), and its PE ~3% below the median (~18.8x) — the PB discount reflects structural disadvantages of ~30.6% thermal capacity (estimated) and minority dilution, while the PE discount narrows because the attributable basis already strips out dilution; relative valuation sits at a "reasonable discount." Note: SDIC's weighted ROE is not shown as it could not be verified against the original source; peer dividend yields are estimates based on respective payout assumptions (50%–70%).
Market-implied expectations: backing out the price implies a zero-growth FCFE of ~RMB 7.9 billion (at a 6.2% cost of equity), ~15% above the three-year non-recurring-adjusted average of RMB 6.8 billion — the current price demands "moderate normalized earnings growth + bond-like stability," whereas reality is a 2026 run-rate of ~RMB 7 billion with growth waiting on the post-2029 commissioning wave; in other words, the price already pays full freight for current earnings and assigns no meaningful premium to the Yalong River midstream growth option (the option's neutral value is ~RMB 3–5/share; the price implies limited payment for it). The implied required return on equity is ~6.0%, 100–130bp above China Yangtze Power (~4.6–4.9%) — if that spread narrows once tariffs stabilize, it implies ~+12–18% re-rating room; conversely, if long-term contract tariff cuts materialize, the current price lacks a cushion.
Three layers of value: Asset value (replacement cost basis) RMB 11.5–15.7/share — replacing hydro assets at Mengdigou/Yagen II's actual construction cost of RMB 13,300–14,500/kW, significantly above book net assets per share of RMB 8.61, providing a reference floor on the downside; EPV (zero-growth equity value) midpoint ~RMB 16.5/share (normalized FCFE of RMB 0.92–1.14 ÷ discount rate 6.0–6.5%; base year FY2025 non-recurring-adjusted profit of RMB 7.355 billion, with attributable D&A added back and maintenance capex plus perpetual bond interest deducted, yielding normalized FCFE of ~RMB 8.0–8.4 billion); growth option neutral value ~RMB 3–5/share. The current price is mainly supported by the EPV layer (the price sits within the EPV range of RMB 14.1–19.0, ~4% below the midpoint), with the growth option essentially unpriced — meaning the downside protection at current levels comes from asset and cash-flow floors, not cheapness.
Three scenarios and odds (18-month horizon):
| Scenario | Probability | Fair Range | Core Assumptions | vs. Current |
|---|---|---|---|---|
| Bear | 30% | RMB 11.5–13.0 | Broad -0.02–0.03 RMB/kWh cuts in 2027 long-term contracts + dry hydrology + high coal prices: attributable profit falls to RMB 6.2–6.6 billion, required yield rises to 3.9–4.1%, PE anchor 14–15x | Median -22.9% |
| Base | 50% | RMB 15.5–17.0 | Normal water year + tariffs down 1–2% annually + coal at RMB 600–680/ton + new units at full output: 2027E attributable profit RMB 7.2–7.6 billion × 17.2x | Median +2.3% |
| Bull | 20% | RMB 18.5–20.5 | Consecutive wet years + tariffs stabilizing/recovering in 2027–28 + discount rate converging toward Yangtze Power's level at 5.2–5.5%: 2028E attributable profit RMB 8.0–8.5 billion × 19.5x | Median +22.8% |
The base-case exit multiple of 17.2x is anchored to an ~8–11% discount to the peer median (~18.8x, reflecting the thermal and dilution structure) plus the company's own historical midpoint; the bull case's 19.5x is anchored to Huatai's SOTP applying 20x to hydro (highest visible sell-side target of RMB 18.26 as of 2026, Huatai, 2026-09-02, Buy). On the external pessimistic anchor: no Sell ratings on A-share utilities in 2026, so the available lower coordinate is the bottom of the consensus distribution (median target RMB 16.8;近 90-day EPS downgrades of 1.1%) — this report's bear case sits below that boundary; the difference arises because consensus is sell-side short-term targets with a systematically left-skewed distribution (no Sells), while the bear case is constructed on independent stress assumptions of simultaneous tariff/hydrology/coal deterioration (implying 14–15x PE and a bond-like re-pricing at a 4% yield requirement). The two bases differ and are not directly comparable.
Conclusion: fairly valued, leaning expensive (fair); assess quality and price separately — quality is strong (moat and cash-flow certainty), price is fair (no margin of safety, -2.4%). Target range RMB 15.5–17.0 = base-case fair value. Our own earnings forecast below is 3–6% below sell-side consensus (FY2026E RMB 7.44 billion); the entire disagreement lies in tariff assumptions. Liquidity risk is not applicable (average daily turnover ~RMB 300–500 million, 0.3–0.5% of market cap).
2025 nationwide electricity consumption reached 10.37 trillion kWh, historically crossing the 10-trillion mark with +5.0% YoY growth (CEC/NEA basis), roughly twice total annual U.S. consumption; 2025 national generation was 10.6 trillion kWh (+4.8%). Growth trajectory: 2024 +6.8% (9.85 trillion) → 2025 +5.0%, averaging +6.6% per year through the 14th Five-Year Plan; the CEC projects 2026 consumption of 10.9–11 trillion kWh, +5%–6% YoY (actual H1 2026: +5.3%), with a ~5%–6% central growth rate over the next 3 years. Structural increments are clearly quantifiable: high-tech manufacturing electricity use +6.4% in 2025; internet data services electricity use averaging +35.9% annually over 2021–2025 (computing power/data center driven); battery-swapping and charging services +48.8% in 2025 — electricity demand has held 5%+ growth even as GDP elasticity declines, making the long-term certainty of power demand higher than in most industries.
Hydro's position in the generation mix: by end-2025, national hydro capacity was 450 GW (380 GW conventional + 65.94 GW pumped storage), 11.6% of total installed capacity of 3,890 GW; annual hydro generation was 1.46 trillion kWh, 13.8% of total generation. Supply additions are already highly scarce: of the 550 GW of new capacity added nationally in 2025, wind/solar took 80.2%, while hydro added only 12.15 GW (4.67 GW conventional + 7.48 GW pumped storage); hydro's technically exploitable capacity is 542 GW with ~79% developed (common industry estimate), and large hydro has entered a phase of "mature stock + rolling development of a few basins." The major future supply event is the lower Yarlung Tsangpo project (construction start 2025-07, total investment ~RMB 1.2 trillion, capacity 60–81 GW — about three Three Gorges — construction period 10+ years, commissioning around 2035), plus the Yalong River midstream and upper Lancang River — hydro returns to ultra-large-scale construction from the 15th Five-Year Plan onward, but new supply is concentrated in southeastern Tibet and western Sichuan, constrained by grid absorption and transmission channels, so the tariff impact on existing hydro is limited and distant.
The power value chain runs "generation — transmission/distribution (State Grid/Southern Grid monopoly, regulated pricing) — retail/end users." Value distribution within generation is highly bifurcated: large hydro gross margins 58–63% (SDIC 2025 hydro 62.7%, Yangtze Power 2026H1 57.9%, Huaneng Hydropower 58.6%), thermal 11–21% (set by the coal cycle), renewables 29–42% (under pressure post-market-entry). Hydro's cost structure is dominated by depreciation and finance costs (together over 70% of total costs), with no fuel cost and near-zero marginal cost; in a rate-cutting cycle, falling finance costs are a direct source of profit elasticity (the company's 2026 perpetual bond issuance carried rates of only 1.90%–2.30%, with finance costs down -18.6% YoY over the first three quarters). SDIC Power occupies a premium position within generation: strong bargaining power over upstream (equipment/engineering) with no resource dependence; downstream, moderately strong bargaining power backed by cross-province transmission channels (the ±800kV Yazhong DC line to Jiangxi and the Jinsu DC line to Jiangsu) and inter-governmental agreement tariffs; in 2026H1, national market-traded electricity reached 3.68 trillion kWh (+24.2%), and deepening marketization is broadly neutral-to-positive for low-cost hydro.
The core feature of the competitive landscape is the "one basin, one operator" basin-monopoly oligopoly: the Yangtze mainstem = China Yangtze Power (71.695 GW, ~16% of national hydro, the world's largest listed hydro company), Lancang River = Huaneng Hydropower (~27.31 GW), Yalong River = Yalong River Hydropower Co., a joint venture of SDIC Power (52%) and Chuantou Energy (48%), Dadu River = CHN Energy Dadu River, Wu River = Huadian, Hongshui River = Guiguan Power. The four listed hydro companies together hold ~120 GW, roughly 29% of the national total (approximate, not fully time-matched). Entry barriers are extremely high: basin resources are exclusively granted by government planning, single projects cost tens of billions of RMB (Mengdigou total investment RMB 34.7 billion, Yagen II RMB 33.4 billion), construction cycles run 101–105 months, resettlement and ecological approvals are strict, and multi-year regulation reservoirs and cascade joint-dispatch capability (Yangtze Power's six-reservoir joint dispatch added 14.01 billion kWh of water-saving incremental generation in 2025) cannot be replicated. There is no direct competition within basins; competition on the generation side shows up in tariffs and volumes: wind/solar at nearly half of installed capacity (47.3% of total capacity by end-2025) is squeezing thermal volumes (SDIC 2025 thermal generation -17.6%) and pressuring market prices, but large hydro's tariffs are relatively firm thanks to zero marginal cost and transmission mechanisms (Yalong River 2025 on-grid tariff +2.34%, rising against the trend) — price-war risk is concentrated in renewables, not large hydro. Substitution threat: wind/solar plus storage will marginally substitute hydro volumes over the medium-to-long term, but hydro's capacity support, black-start, and multi-year regulation functions are irreplaceable in the near term within the new power system — its flexibility value is actually being re-rated (2026H1 national hydro utilization hours rose +74 hours against the trend, versus -170 for wind and -70 for solar over the same period).
The industry is in a phase of "maturity + structural transformation": the central growth rate of electricity consumption has declined from 6.8% to 5% but remains above the expected GDP elasticity; the power generation mix is shifting from a coal-fired base to "renewables-led + flexible resources." There are five regulatory themes: ① Document No. 136 (NDRC Price [2025] No. 136): renewable energy on-grid electricity will fully enter the market starting 2026, with mechanism prices settled via contract-for-difference, forcing the spot market to achieve near-full coverage by end-2025—neutral-to-positive for large hydro (zero marginal cost benefits relatively in spot and flexibility markets), negative concentrated in renewables (SDIC's 2025 wind/solar blended tariff fell -14.5%); ② coal-fired capacity pricing (NDRC Price [2026] No. 114): from 2026, the fixed-cost recovery ratio rises to no less than 50% (RMB 165/kW·year), with pricing authority delegated to local governments—positive for the stability of the company's 15.31 GW of thermal earnings (estimated after-tax profit uplift of about RMB 680 million/year, about RMB 440 million attributable to parent); ③ spot market rollout: Sichuan launched continuous spot settlement trial operation in Sep 2025, with formal operation expected around 2027—hydro dry-season volumes may capture spot premiums, while wet-season discounts are the reverse risk; net impact depends on flexibility capacity (precedent: Huaneng Hydropower's 2026H1 average spot price was about 9 fen/kWh higher than long-term contracts); ④ conversion of water resource fees into taxes slightly raises hydro tax burden; ⑤ expansion of green certificate and ancillary services markets (54.03 million green certificates traded in 2025). Key leading indicators for cycle positioning: basin inflows/stored energy value, market-based long-term contract tariffs, coal prices, and utilization hours.
SDIC Power is the third-largest listed hydropower company in China (2,130.45 MW-equivalent: controlled hydropower capacity of 21,304.5 MW, about 4.7% of the national total), in the industry's top tier—below leader China Yangtze Power, tied with Huaneng Hydropower at the head of the second tier. Its moat comes from: ① exclusive development rights over the entire Yalong River basin (planned at about 30,000 MW, 19,200 MW in operation with 64% developed, 612 MW under construction/pending approval, and over 7,000 MW awaiting development in the long term—growth scarcity among the highest for large hydropower companies, as China Yangtze Power is largely fully developed and Huaneng Hydropower's Lancang upper-reach cycle is longer); ② multi-year regulation capability from three major regulating reservoirs—Lianghekou/Jinping Level-1/Ertan—making year-to-year volatility smaller than single-basin pure hydro plays (Guiguan Power's 2026H1 attributable profit surge of +48% is the negative counterexample); ③ a lowest-cost-curve position at RMB 0.107 net profit per kWh; ④ the Yalong River wind-solar-hydro integrated demonstration base (the nation's first, planned at 78,000 MW, to be completed by 2035), converting hydro flexibility advantages into wind-solar development rights advantages. Share trend: steady upward (small increase as midstream units come online 2029–2032). Note on market-position definitions: the company's annual report definition of "third-largest listed hydropower company in China" is consistent with sell-side definitions; no contradictory third-party rankings have been found.
The value formula of power plant operators is "capacity × utilization hours × on-grid tariff − costs"; this section presents the company's operating foundation under that framework.
Controlled capacity structure (end of 2026Q3, 49,993.1 MW, +6.6% YoY): hydropower 21,304.5 MW (42.6%), thermal 15,313.1 MW including waste-to-energy (30.6%, own estimate in this report), solar 8,478.6 MW (17.0%), wind 4,205.3 MW (8.4%), energy storage 691.6 MW (1.4%); clean energy share of 69.4% (72.12% at end-FY2025; Q3 additions of 2,238.3 MW of thermal—Qinzhou Phase III units 3/4 at 660 MW each and Zhoushan gas turbine unit 2 at 848.3 MW—raised the thermal share). The decline in clean energy share is a short-term structural phenomenon and will rebound from 2027 once wind/solar projects under construction (1,210 MW wind + 4,545 MW solar) come online.
Utilization hours (FY2025): average 3,651 hours (-502 hours); by source: hydropower 4,604 hours (high and stable, aided by Lianghekou regulation), thermal 3,625 hours (third consecutive annual decline: 4,896→4,347→3,625, squeezed by nuclear and renewables—an industry-wide phenomenon), wind 1,747, solar 1,246 hours.
On-grid tariffs: average on-grid tariff FY2023 0.3741 → FY2024 0.3587 → FY2025 0.355 RMB/kWh; Jan–Sep 2026 at 0.345 RMB (-0.29%), Q3 alone 0.317 RMB (-5.09%); market-traded electricity share 45.11% (FY2023) → 41.64% (FY2024) → 45.25% (FY2025, 69.779 billion kWh). Structurally, Yalong River outward-transmission tariffs stayed firm against the trend (+2.34% in 2025); price pressure mainly came from renewables entering the market and market-based thermal power.
Water inflows (the "weather variable" unique to hydro): FY2025 Yalong River inflows were below normal (hydropower generation -5.76%); below-normal inflows in 2026H1 cut Yalong River generation by about -20%, with a marked recovery in the Q3 main flood season (+19.04%) and a cumulative -4.51% for Jan–Sep; as of 2026-07-31, cascade stored energy stood at 17.77 billion kWh, +0.95 billion YoY (+5.6%), providing a moderate buffer for Q4 dry-season output and 2027H1 generation—since the YoY increase in stored energy is limited, the ceiling on any "sharp recovery" in 2027H1 is constrained by end-of-flood-season storage in 2026; end-Sep/Oct stored energy values and whether Lianghekou fills by year-end need monitoring.
Pipeline under construction (the source of value creation and destination of capex): in the Yalong River basin, 3,720 MW of conventional hydropower approved and under construction (Mengdigou 240 / Kala 102 / Yagen Level-1 30; Kala targeted for 2029, Mengdigou first unit 2031) + 3,300 MW of pumped storage (Lianghekou hybrid 120 MW—wait, 1,200 MW, the world's largest hybrid pumped-storage project, with capital IRR of 6.5% under government-set pricing and first unit expected around 2028; Daofu 2,100 MW); pending approval: Yagen Level-2 2,400 MW (first unit 2035); thermal under construction 4,406.6 MW (Qinzhou Phase III in operation, Meizhou Bay Phase III, etc.); wind 1,210 MW + solar 4,545 MW under construction. 2026 planned infrastructure investment of RMB 24.45 billion and equity investment of RMB 7.27 billion. The 510 MW Batang project in Indonesia is an overseas construction project nearing completion and is not part of the Yalong River pipeline.
Overall rating: Neutral, confidence 0.55, time horizon 12 months. SDIC Power owns rare basin-monopoly hydro assets in the A-share market plus certain capacity growth post-2029; its 55% payout commitment is credible and a 3.1–3.2% dividend yield provides a bond-like floor. However, the current price of RMB 15.88 already fully prices these attributes (probability-weighted fair value RMB 15.7, base-case fair value RMB 15.5–17.0), the margin of safety is negative, PB is at a one-year high, and both key variables over the next 6 months—tariffs (2027 annual long-term contracts) and coal prices—point unfavorably. Per the decision matrix, the current price falls within the base-case fair range with no de-rating catalyst confirmed, so no bearish call is made; nor is there a margin of safety to support buying.
Strategy: ① holders continue to hold for income, with RMB 15.5 (base-case lower bound; reassess entry) and RMB 17.0 (base-case upper bound; safety margin exhausted, assess exit) as discipline boundaries; ② new capital waits for either of two signals: the stock falling below RMB 15.5, or confirmation that the 2027 annual long-term contract tariff decline narrows to within 1%; ③ for pure income allocation, China Yangtze Power (≥70% payout commitment, ~3.4% dividend yield) is preferable to SDIC; for capital accepting growth duration and tariff volatility, SDIC's option value becomes attractive only when the 2027 long-term contracts are settled and the valuation discount converges.
Risk and catalyst alerts: upside catalysts—long-term contract tariffs stabilizing better than expected in Nov–Dec 2026 (the highest-probability directional event), Yalong River monthly generation turning positive YoY from January 2027, NDRC approval of Yagen Level-2 (window 2026Q4–2027H2), completion of the major shareholder's share purchase plan (no later than 2027-01), delivery of FY2026 dividends and a new shareholder-return plan; downside risks—across-the-board long-term contract cuts of 2–3 fen (attributable profit -RMB 1.3 to -1.9 billion, triggering valuation convergence toward 14–15x), renewed below-normal inflows (Yalong River generation <-15% for two consecutive quarters), coal prices holding above RMB 1,000/ton (thermal net profit per kWh falling below 2 fen), disclosure of a selldown plan by the National Social Security Fund before the unlock of 550 million shares on 2028-03-06, and impairment provisions on the Indonesia Batang PPP receivables (RMB 10.278 billion). A complete monitoring checklist with thresholds has been established alongside this report's tracking archive.
This report is based on the closing price of 2026-10-28 (RMB 15.88) and public information available as of the writing date. Financial data are drawn from the company's FY2023–FY2025 annual reports, 2026 Q1/interim/Q3 reports and ad-hoc announcements; industry data are drawn from the China Electricity Council, the National Energy Administration, and public research. This report's own estimates (normalized cash flows, ROIC, scenario fair values, growth option value, etc.) are analytical estimates and do not reflect company-disclosed figures.