Divergent 3Q26 volume data but El Niño supports stronger 2027 outlook

Hydropower names reported divergent 3Q26 power generation due to uneven water inflow. Yangtze Power's output fell 14.9% YoY and Huaneng Hydro declined 4.7%, while inflow into the Yalong River's Ertan, Jinping I and Guandi stations rose about 10-25% YoY. We forecast CYPC's 3Q26 net profit at Rmb12-12.8bn, down 15-20% YoY, and SDIC Power's at Rmb2.9-3.1bn, up 10-15%. The National Climate Centre confirmed a super El Niño in September, expected to peak in late autumn or early winter; with the typical six-month lag, its impact on rainfall and hydropower inflow should be more evident in 2Q-3Q27, and past cycles show strong generation rebounds in the year after El Niño. Guangdong market-based tariffs rose to Rmb422/MWh in 3Q26 versus the Rmb372/MWh annual contract, supporting long-term tariff expectations. CYPC and SDIC offer 3.8%/3.4% 2027E dividend yields, with spreads over 10-year bond yields of 2.1%/1.3%; we like both defensive names.