On Thursday, Daiwa Securities adjusted its stance on China Resources Power Holdings (836:HK) (OTC: CRPJY), moving from an "Outperform" rating to "Neutral." The firm also revised the price target to HK$20.00 from the previous HK$20.40.
The change in rating comes as the analyst at Daiwa believes that while the valuation for China Resources Power is now justified, there are more attractive investment opportunities available in the market.
China Resources Power is currently trading at a 2024 estimated price-to-book ratio (PBR) of 1x, which is considered higher than its industry peers. For comparison, the coal-fired peer Huaneng Power International (NYSE:HNP) (HPI) is trading at approximately 0.5x PBR, and the renewable independent power producer Longyuan Power (LYP) at 0.6x PBR, based on Daiwa's estimates.
Despite China Resources Power's dividend yield of 5.4% projected for 2024, the firm does not anticipate this will drive further rallies in the company's share price.
The analyst highlighted that there are other companies within the China Independent Power Producer (IPP) sector that present a more compelling value proposition. Specifically, CPID (2380 HK) is noted for its low valuation at 0.6x 2024 estimated PBR, with the added advantage of benefiting from both coal-fired's dark spread expansion and hydropower's recovery.
Daiwa Securities has updated its pecking order for the China IPP sector, now favoring hydropower as the top pick, followed by coal-fired, nuclear, and renewables. This reordering reflects the firm's current view on the relative attractiveness of the different energy sources within the sector.
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