On Friday, Citi updated its outlook on China Resources Power Holdings (836:HK) (OTC: CRPJY) shares, increasing the price target to HK$26.50 from HK$25.50, while reiterating a Buy rating on the stock. The adjustment reflects an estimated 2.9-3.7% rise in the company's earnings for 2024-2026, attributed to higher utilization of coal-fired plants.
The firm's revised discounted cash flow (DCF) target price represents a 3.9% increase, signaling confidence in the power company's performance. The analyst at Citi notes that China Resources Power is poised to benefit from ongoing power industry reforms that are expected to lead to more renewable capacity additions, despite potential challenges from competitive tariffs.
Citi's analysis suggests that the risk of tariff cuts is manageable, with limited anticipated reduction in coal-fired tariffs for 2024 due to annual contracts already in place. Additionally, the market-based tariffs for renewable energy sources have shown a year-over-year increase in the first four months of 2024.
The analyst further points out that the "dark spread," or the profit margin of coal-fired power plants, has expanded year-over-year in 2024 so far. This is seen as a positive indicator for the company's profitability.
Moreover, Citi predicts that China Resources Power's net profit for the first half of 2024 will exceed consensus estimates by 30%, reaching HK$8,755 million. This figure surpasses Bloomberg's forecast, which projects a 20% year-over-year increase in net profit for the full year of 2024, driven by the expanded dark spread and increased utilization of coal-fired plants.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.