For months, a tariff cut for coal-fired power has been an overhang on the sector, dampening investor interest in the electricity producers and keeping the share prices of the firms subdued on the stock markets.
Leading players China Resources Power (CR Power, 00836.HK) and Huaneng Power (00902.HK) both saw their market value get eroded last year despite much stronger earnings.
JP Morgan says industry experts it has spoken to believe Chinese regulators will not make any adjustment to the tariffs at least in the first half of this year. But that comment is unlikely to help the sector much, with the stocks likely to remain in check in the coming months.
CR Power, however, warrants a slightly better showing due to its growing wind power business.
While other power producers have opted to cluster green energy projects under separate listing vehicles, CR Power has built a rather sizable wind farm business alongside its traditional plants that use coal as fuel. The company bought a chunk of wind farm assets from its parent last year in addition to self-developed projects, enabling it to own 44 wind farms as of June 2013.
JP Morgan expects wind energy business to account for nearly a fifth of CR Power’s pro forma profits in 2014/15, compared with 12-15 percent of the pro forma profits in the first half of 2013.
CR Power probably won’t get rerated as a clean energy play right away, but the growing weight of the fast-growing business, which is in sync with the government’s plan to promote recyclable energy, should eventually draw the market’s attention.
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