Power stocks have risen for a year! There are many positive factors behind it.

Globally, the emphasis on renewable energy continues to increase, and the power industry is entering an important phase of transition from traditional fossil fuels to clean energy. This energy transition not only provides new growth points for the economy but also brings market opportunities for power companies.

The China Electricity Council stated that as the proportion of new energy gradually increases, coal-fired power is transitioning towards becoming a foundational and system-regulating power source. The diversified development of power sources is a reliable guarantee for the safe operation of the power system.

In the capital markets, power stocks have become the focus of capital competition.

The sector has risen for a year, with multiple stocks receiving institutional buy-ins

Earlier, several investment banks were bullish on power stocks, with UBS raising target prices for most mainland power stocks. The bank stated that it maintains a positive outlook on the sector due to strong fundamentals and opportunities for valuation reassessment.

Since late October last year, the Hong Kong stock market's power sector has started an upward trend, with active market trading. According to Futu NiuNiu data, from October 23, 2023, to the present, the power index has accumulated a gain of nearly 70%, with the sector's total market value exceeding one trillion.

The sector includes 20 concept stocks, most of which have attracted capital favor, with impressive stock price gains. Year-to-date, $CGN POWER(01816.HK) has topped the sector with a gain of about 50%, driven by the company's accelerated development due to the addition and approval of new nuclear power units this year.

Additionally, $CHINA SUNTIEN(00956.HK), $CHINA POWER(02380.HK), and $DATANG RENEW(01798.HK) have also delivered outstanding performances, with cumulative gains exceeding 30%.

According to Wind data, Hong Kong-listed power stocks have been highly favored by southbound capital this year, with most stocks seeing net inflows in the Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect. The top stocks in terms of net purchases include CGN Power, $CHINA LONGYUAN(00916.HK), and $CHINA RES POWER(00836.HK).

In fact, many power stocks have recently seen strong interest from shareholders and investment institutions in increasing their holdings.

For example, in May this year, CITIC Financial Asset Management (a central enterprise) increased its stake in China Power to 5%. Since June, Datang Renewable Power has received multiple share purchases from Shanghai Ningquan Asset Management Co., Ltd. and Great Wall Life Insurance Co., Ltd. Huadian Power International (0902.HK) has also seen increased holdings from Pacific Asset Management Co., Ltd. and Shanghai Ruijun Asset Management Co., Ltd. BlackRock has increased its holdings in CGN Power by nearly HKD 200 million this year.

Longyuan Power is a "darling" of capital. According to Wind data, from July to September, Rui Zhong Life Insurance increased its holdings in Longyuan Power H-shares eight times, totaling approximately HKD 350 million, raising its stake to 12.47%. Additionally, Longyuan Power has received multiple share purchases from the Government of Singapore Investment Corporation this year, with its stake reaching 9%.

Kaiyuan Securities noted in a research report that insurance capital's entry may favor power assets such as hydropower and new energy, aligning with the national dual-carbon strategy. These assets also feature almost no variable costs and cash flows far exceeding net profits.

Accelerated growth in power generation, market barriers continuously cleared

This year, China's power market has seen growing demand, with both supply and demand thriving.

Data from the National Energy Administration shows that in September, total electricity consumption reached 847.5 billion kWh, a year-on-year increase of 8.5%. Electricity consumption has maintained rapid growth this year, with year-on-year growth rates exceeding 8% in both August and September.

According to the National Bureau of Statistics, large-scale industrial power generation in September was 802.4 billion kWh, up 6.0% year-on-year, with growth accelerating by 0.2 percentage points compared to August.

China's new energy projects have significantly increased, injecting new vitality into the power market and driving notable growth in power generation. Data from the National Energy Administration shows that as of the end of September, the country's total installed power generation capacity reached approximately 3.16 billion kW, up 14.1% year-on-year. Solar power capacity was about 770 million kW, up 48.3%, while wind power capacity was about 480 million kW, up 19.8%.

These figures indicate that the fundamentals of China's power industry continue to improve, which is one reason for the sustained rise in power stock prices.

Notably, recent government policies support corporate mergers and acquisitions, and the power industry has begun a wave of intensive restructuring, positively impacting effective resource allocation and market vitality.

For example, Huadian Power International (01071.HK) announced in August plans to acquire several thermal power asset companies from its controlling shareholder. SDIC Power recently disclosed plans to acquire 100% of SDIC Nuclear Energy, becoming the integration platform for State Power Investment Corporation's nuclear power assets.

Longyuan Power received a "big gift" from its controlling shareholder. In July, to reduce and resolve competition, China Energy Investment Corporation planned to inject equity from new energy companies into Longyuan Power in batches, with an expected new energy capacity of about 4 million kW. On October 22, Longyuan Power announced plans to acquire equity in eight new energy companies from China Energy Investment Corporation for a total of HKD 1.686 billion.

Despite short-term adjustments, the new energy industry remains in a rapid growth phase. During this period, mergers and acquisitions in the power industry not only help build "moats" for the industry and companies but may also stimulate market enthusiasm, further driving the sector's rise.

Additionally, China's inter-provincial power spot market has recently transitioned to formal operation, further expanding the scope of power market transactions. Guoyuan Securities noted in a research report that the formal operation of the inter-provincial power spot market marks a new level in the construction of a unified national power market, expected to further expand the scope of power market transactions, optimize power resource allocation, and significantly promote new energy consumption.

For the photovoltaic industry, this year is a year of consolidation, with oversupply accelerating industry reshuffling and price wars intensifying.

In response to the irrational decline in photovoltaic module prices, the China Photovoltaic Industry Association recently provided a "reference price" of RMB 0.68/W for October 2024, stating that winning contracts must be above cost. Industry analysis suggests that future bids may depend more on technical evaluations, considering factors such as company scale, strength, technical capabilities, and past performance.

In overseas markets, the U.S. Department of Commerce initiated a Changed Circumstances Review (CCR) on October 21, considering partial revocation of anti-dumping and countervailing duties (AD/CVD) on certain crystalline silicon photovoltaic cells from China, inviting relevant parties to comment. The products involved are certain small, low-wattage, off-grid CSPV cells.

As a result, Hong Kong-listed photovoltaic stocks surged collectively on October 23, with Shunfeng Clean Energy (01165.HK) rising over 47%, and Comtec Solar (00712.HK), GCL Technology (03800.HK), and Solargiga Energy (00757.HK) also posting significant gains.

Summary:

Driven by multiple favorable factors such as market demand and policy support, the power industry is undergoing a new round of growth, with listed power companies' fundamentals continuously improving.

In the Hong Kong stock market, power stocks hold significant weight and are key industry targets for investors. In past "Hong Kong Top 100" selection events, outstanding power companies have frequently appeared on lists such as "Top 100 in Comprehensive Strength," "New Energy List," and "Top 10 in Total Return Rate."

The 2024 Hong Kong Listed Companies Development Summit Forum and the 11th "Hong Kong Top 100" Awards Ceremony, hosted by the Hong Kong Top 100 Research Center and co-organized by Caijinghua and Futu AnYi, with support from media institutions such as Hong Kong Ta Kung Wen Wei Media Group, will be held grandly at the Hong Kong Convention and Exhibition Center on the afternoon of November 11, 2024. Which power companies will successfully make the list with their strong capabilities? The answer will soon be revealed.

Author: Yao Yuan