Citi has raised its forecast for China's power demand growth this year from a previous year-on-year increase of 6% to 7.5%, and next year's forecast has been raised to a growth of 7%.
According to the report by Citigroup, it gives a "buy" rating to China Resources Power (00836) with a target price of HKD 25.5.
The report states that this year's forecast for China's power demand growth has been raised from a previous year-on-year increase of 6% to 7.5%, and next year's forecast has been raised to a growth of 7%. The expected increase in power demand mainly comes from charging services, power machinery and equipment manufacturing, rare earth metal smelting, and the development of AI and electrified railway transportation industries. The expected higher demand for electricity growth will benefit power grid equipment suppliers to strengthen capital expenditures and improve the utilization rate of coal-fired power plants. The top choices are Henan Pinggao Electric (600312.SH), Sieyuan Electric (002028.SZ), and China Resources Power.
The report argues that the increasing application of AI is driving higher electricity demand growth. The bank estimates that China's electricity demand growth relative to GDP growth rate has risen from an average of 0.86 times in the past decade to 1.27 times from 2020 to 2023, and further increased to 1.8 times in the first quarter of this year. This is mainly due to changes in the economic structure and faster demand growth in industries such as AI, electric vehicles, and automation.