The National Development and Reform Commission and the National Energy Administration jointly issued the “Notice on Carrying Out the Renovation and Upgrading of National Coal Power Units”. The scale of coal-saving and consumption-reduction modifications of power plants during the 14th Five-Year Plan period will not be less than 350 gigawatts. Furthermore, the flexibility transformation of the 200 gigawatt coal power unit in stock will be completed during the period to promote clean energy consumption. By the end of October 2021, the cumulative installed capacity of domestic coal power was about 1,140 gigawatts, which is expected to boost domestic market demand for power plant engineering services over the next ten years.

The National Energy Administration officially released the “Medium- and Long-Term Development Plan for Pumped Energy Storage (2021-2035)”. According to the development plan, China's total pumped storage capacity production will increase from 32.5 gigawatts at the end of 2020 to 62 gigawatts by 2025, and will reach about 120 gigawatts by 2030 to improve grid stability and support the country's renewable energy development. We expect that no less than RMB 500 billion will be invested in pumped storage projects from 2021 to 2025, which means that an annual investment of around RMB 100 billion in pumped storage projects may be equivalent to RMB 20 billion in hydropower equipment needs per year.

We raised the company's investment rating to “buy” and raised the target price to HK$4.88. Given the recent frequent favorable policies issued by the government, we are optimistic about the company's prospects. Our forecast for the company's earnings per share from 2021 to 2023 is RMB 0.091/RMB 0.243 /RMB 0.363 respectively. Our new target price is equivalent to 43.7 times/16.5 times/11.0 times the price-earnings ratio 2021 to 2023 or 0.4 times/0.4 times/0.4 times the net price-earnings ratio of 2021 to 2023.