Jinwu Financial News | According to the J.P. Morgan Chase Research Report, China Resources Electric (00836)'s stock price has outperformed the market by more than 35% since the beginning of July. The market's concerns about next year's electricity price reduction may be excessive. The company's current stock price corresponds to a 1-year dynamic price-earnings ratio of less than 6 times, so there are buying opportunities. Even assuming a sharp reduction in electricity prices over the next two years, the stock's current expected dividend yield is about 7%. J.P. Morgan believes that electricity prices will only drop moderately because China's electricity consumption growth is still strong, and the negative factors brought about by the reduction in electricity prices may be partially offset by lower coal prices and rising passenger electricity prices.
The bank is cautiously optimistic about the power industry as a whole, believing that the market's concerns about the reduction in electricity prices under thermal power contracts are reflected in the stock price. Electricity prices are expected to drop by about 9% in 2025-26, which may be partially offset by lower coal prices. J.P. Morgan expects China Resources Electric to have an expected dividend yield of 7.5%/about 9% in 2025/2026. It believes that even if the price of thermal power and renewable energy falls to the benchmark level, the dividend yield in 2026 will be around 7%, because by 2026, the company will have about 90 gigawatts of power generation to support profit growth.
The bank expects the company's revenue in 2024 to be 104.303 billion yuan, and the adjusted net profit is 13.903 billion yuan. By 2025, revenue is expected to grow to 110.628 billion yuan, and the adjusted net profit is 16.852 billion yuan. By lowering the assumed value of electricity prices/coal prices, China Resources Electric's profit forecast for 2025-26 has basically remained unchanged. In view of macroeconomic uncertainty in the first half of 2025 and the decline in interest rates in China, and combined with the increase in stock issuance, J.P. Morgan Chase upgraded China Resources Electric Power's rating to “increase holdings”, with a target price of HK$21.
