Which companies in the Hong Kong electrical utilities sector have seen the most significant gains? How are market expectations as state-owned enterprises in the China power sector undergo frequent restructuring and mergers?
Today, the Hong Kong electrical utilities sector collectively rose, with leaders in thermal power, wind power, and nuclear power sub-sectors leading the gains.
As of the time of publication, China Longyuan (00916.HK) rose nearly 5%, Huaneng Power International, Inc. (00902.HK), CGN New Energy (01811.HK) both rose around 4%, Huadian Power International Corporation (01071.HK), and China Resources Power (00836.HK) followed the upturn.
On the news front, the inter-provincial wholesale electricity market has officially commenced operations recently, further expanding the scope of market-oriented trading in electrical utilities, leading to an increase in market expectations for the performance of electrical utility stocks.
The Zheshang Securities public utilities team stated in their report on October 20 that the inter-provincial wholesale electricity market has officially launched and is utilizing electricity price signals to guide the efficient cross-regional allocation of electricity resources. They recommend focusing on central government-owned thermal power companies, energy storage, and green electricity sector. The green electricity sector's valuation is currently undervalued, especially with many green electricity stocks in Hong Kong trading below net asset value.
Research by analyst Deng Yongkang from Minsheng Securities released on October 20 also indicates that since the trial operation began, the monthly trading volume in the inter-provincial wholesale electricity market has steadily increased.
Furthermore, in September, electricity generation by large-scale industrial enterprises continued to grow, with increases in wind power and thermal power generation rates showing improvement. This trend indicates a positive outlook for the electrical utilities industry.
Data shows that in September, the total electricity consumption amounted to 847.5 billion kilowatt-hours, an 8.5% year-on-year increase; electricity generation by large-scale industrial enterprises totaled 802.4 billion kilowatt-hours, a 6.0% year-on-year increase, with the growth rate accelerating by 0.2 percentage points from August. Among these, the growth rate of thermal power generation and wind power generation by large-scale industrial enterprises accelerated, hydroelectric power changed from growth to decline, while the growth rates of nuclear power and solar power generation declined.
It is worth noting that, with multiple policy measures actively promoting mergers and acquisitions in the market recently, state-owned enterprises in the electrical utilities industry have also embarked on an intensive round of restructuring.
Previously, China Power's major shareholder, State Power Investment Corporation, disclosed a restructuring plan, intending to develop listed companies Yuanda Environmental Protection (600292.SH) and SPIC Industry-Finance Holdings (000958.SZ) as hydroelectric and nuclear power platforms for SPIC Group.
Even earlier, Huadian Power International also announced that its controlling shareholder, China Huadian, plans to inject high-quality thermal power assets into the company. The 8 companies to be injected are expected to generate revenue exceeding 35 billion yuan in 2023.
According to a previous report from Huayuan Securities' Public Utilities Team, SPIC Group proposed in 2021 to build a world-class flagship platform for clean energy around China Power. So far, they have conducted 4 rounds of capital operations.
It is worth mentioning that in recent years, promoting the specialization in the restructuring of state-owned enterprises is also one of the key directions of state-owned enterprise reform, but progress has been slow due to the environment of the capital markets.
With the release of the China Securities Regulatory Commission's "Opinions on Deepening the Reform of the Mergers and Acquisitions Market of Listed Companies", the time window for relaxed policies has opened. The restructuring and mergers by state-owned enterprises are expected to accelerate, potentially heating up the market.
