Key takeaway

The company is an energy platform controlled by Wuchan Zhongda Group under the Zhejiang State Owned Assets Supervision and Administration Commission(SASAC). Since its 2021 listing, it has pursued a two-pronged strategy of "energy trading + energy industrials." In coal distribution, it is one of the largest coal trading companies in China. In combined heat and power (CHP), it operates through seven CHP subsidiaries with annual heat supply capacity of over 18mn tonnes, power generation capacity of over 3bn kWh, and compressed air capacity of over 4 bn cubic meters. Geographically, its CHP plants are mainly located in Jiaxing, Jinhua, and Huzhou — all relatively developed areas with strong downstream heat demand, which has driven continuous growth in steam sales. In 2026, higher coal prices have boosted its profitability in the coal trading business YoY, while the formal consolidation of the South Taihu project in 2026 increased the CHP profit contribution. The company is actively advancing its CHP business, and heat supply scale is expected to grow steadily, further enhancing its overall performance.

Thesis

CHP + trading two-pronged model with continuously optimized business mix.

The company is an energy platform controlled by WZ Group under the Zhejiang SASAC. Since its 2021 listing, it has pursued a two-pronged strategy of "energy trading + energy industrials." In coal distribution, the business is run by Wuchan Huanneng headquarters — formerly Zhejiang Provincial Fuel Company — one of the largest coal trading companies in China. Benefiting from higher coal prices and a greater share of high-value-added business, the company's coal sales volume in 1H26 reached 26.7619mn tonnes, down 16.10% YoY, while total profit rose 7.81% YoY to RMB206mn. In CHP, the company operates through seven CHP subsidiaries. After completing the acquisition of 100% equity in South Taihu Technology in January 2026, its total installed capacity reached 451 MW and annual heat supply capacity nearly 18 mn tonnes. Helped by newly consolidated capacity from South Taihu and expanded heat customers at existing projects, steam sales in 1H 2026 reached 5.3026 mn tonnes, up 24.49% YoY, and segment net profit reached RMB282mn, up 14.02% YoY. In new energy, the company covers molten-salt energy storage, zero-carbon industrial parks, and solar-storage-charging. Driven by expansion in integrated energy services and new energy development and operations, the company's new energy revenue in 1H26 reached RMB174mn, up 294.69% YoY.

CHP: CHP supports stable profitability; acquisitions expand heat supply. CHP uses primary energy sources such as coal, natural gas, and biomass to produce heat and electricity, generating revenue by selling heat and power to downstream heat users (mainly printing and dyeing, textiles, chemicals, food, and paper companies) and to the grid. On heat pricing, the company's CHP plants operate under a coal-heat price linkage mechanism, so rising thermal coal prices can be passed through via heat price adjustments, keeping overall GPM relatively stable. Under the coal-heat price linkage policies in its existing operating regions, for every RMB 1/tonne rise in the market coal price above the benchmark, the steam price is adjusted upward by RMB 0.1–0.2/tonne above the benchmark (linkage mechanisms differ by region). In 2025, revenue per kWh (after tax) was approximately RMB 0.4772/kWh, down about RMB 0.022/kWh YoY; revenue per tonne of heat supply (after tax) was RMB 213/tonne, down about RMB 22/tonne YoY, mainly due to lower coal prices. On electricity pricing, the company's coal -fired CHP plants are not Zhejiang provincial dispatch-controlled units; their on-grid tariffs are related to, but not fully aligned with, the province's coal-fired power market trading prices. In addition, its sludge and biomass power plants receive subsidized tariffs of RMB0.65/kWh and RMB0.75/kWh, respectively, keeping on-grid tariff levels relatively stable. On heat supply scale, growing downstream heat demand has driven an upward trend in the company's heat supply. Starting in 2026, the South Taihu plant was formally connected to the grid, which is expected to further expand heat supply scale. In 1H26, the company sold 5.3026mn tonnes of steam, up 24.49% YoY, and fed 773.6744 mn kWh into the grid, up 12.36% YoY.

Coal trading: nationally leading scale; coal price swings drive per-tonne profit

Coal trading sits in the midstream of the coal industry chain, linking upstream coal producers with downstream coal consumers. On the procurement side, the company signs annual framework agreements with major coal mining companies to secure preferential purchase prices; on the sales side, it prices coal mainly at market rates and buys to order, earning the purchase-sale spread. In terms of profitability, the company's coal purchase-sale spread is broadly positively correlated with coal price trends. When coal prices rise, the company can leverage its centralized procurement cost advantage to command a premium on the sales side, widening the spread. Specifically, in 2024–2025, factors including growth in raw coal production capacity and weak downstream demand pushed thermal coal prices steadily lower, and the company's coal trading GPM per tonne narrowed to RMB 14.8/tonne. Since 2026, international energy market volatility and domestic raw coal production accidents have kept thermal coal prices elevated from 2Q onward; combined with an optimized revenue mix in the coal trading business, GPM per tonne improved significantly, recovering to RMB24.5/tonne in 1H26. As of the end of 3Q26, thermal coal market prices remain elevated, and the company's coal trading profitability is expected to stay at a relatively high level for the full year.

Earnings Forecast

In 2026, higher coal prices improve profitability in the coal trading business YoY, while the formal consolidation of the South Taihu project in 2026 will further boost the CHP business. The company is actively advancing its CHP business, and heat supply scale is expected to keep growing, further enhancing its overall performance. We forecast its attributable net profit of RMB745mn, RMB863mn, and RMB925mn for 2026–2028, implying EPS of RMB1.3, RMB1.5, and RMB1.7 per share. We initiate the coverage on the company with a "Buy" rating.

Risks

Coal price volatility: Profitability in both coal trading and CHP is affected by coal price fluctuations. If market coal prices fall by RMB50/tonne, RMB100/tonne, RMB150/tonne, and RMB200/tonne, attributable net profit would decline to RMB713mn, RMB679mn, RMB643mn, and RMB603mn, down 4.2%, 8.7%, 13.7%, and 19.0% from the base case.

Weak downstream heat demand: The CHP business is sensitive to downstream heat demand. If economic growth slows and downstream companies cut production, industrial heat demand in the parks may decline, and the CHP profit contribution may fall short of expectations.

Changes to the coal-heat price linkage mechanism: Under current policy, the company's heat price maintains a proportional relationship with thermal coal prices. If the coal-heat price linkage mechanism is abolished or the linkage is reduced, the impact of rising thermal coal prices on heat supply profits would increase.