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On Wednesday, UBS analysts downgraded China Resources Power Holdings Co Ltd (836:HK) (OTC: CRPJY) from Buy to Neutral, significantly reducing the price target to HK$18.00 from HK$31.00. The downgrade comes amid expectations of a challenging future for the company’s fundamentals. According to InvestingPro data, the company operates with a significant debt burden, reflected in its debt-to-equity ratio of 1.84 and current ratio of 0.72. UBS anticipates a 7% blended tariff cut in 2025, which is among the steepest for Chinese power producers. Additionally, the firm foresees a decrease in coal power utilization hours due to a slower growth outlook for power demand, adjusting the forecast from 6% to 5% over the period from 2025 to 2030.
The revised UBS price target reflects a substantial cut in earnings estimates for China Resources Power for the years 2025 to 2027, which are now 18-26% below the consensus after a 30-35% reduction in forecasts by UBS. Despite these concerns, InvestingPro analysis shows the company trading at an attractive P/E ratio of 5.95x, with a robust gross profit margin of 47.06%. The analysts at UBS have factored in the potential negative impact of the tariff cuts and the anticipated lower utilization hours on the company’s performance.
China Resources Power’s stock has already experienced an 11% decline year-to-date, which UBS believes indicates that the market has already begun to price in the anticipated challenges. In light of these developments, UBS has expressed a preference for Longyuan over China Resources Power in the Chinese independent power producer (IPP) sector.
The UBS report concludes with a neutral stance on China Resources Power, signaling a cautious approach to the stock amid the expected industry headwinds. The firm’s analysis suggests that investors have started to account for the upcoming tariff reductions and operational adjustments that could impact China Resources Power’s earnings and market position.
In other recent news, China Resources Power Holdings Co Ltd has been upgraded from Neutral to Overweight by JPMorgan, with an adjusted price target of HK$21.00, up from the previous HK$20.00. This upgrade comes in spite of recent market concerns about potential tariff reductions, possible capital issuance, and disappointing results from sector peers. JPMorgan’s analysis suggests that the market has overly penalized the company’s shares, which have significantly underperformed the Hang Seng China Enterprises Index (HSCEI) since early July.
Despite these concerns, JPMorgan views the current valuation of China Resources Power as an attractive entry point, with the stock now offering a projected yield of approximately 7% on a pro-forma basis. This projection is based on the expectation that tariffs will decrease at a moderate rate, in the mid-single-digits percentage annually, due to robust growth in power consumption in China.
JPMorgan’s outlook also takes into account estimated decreases in coal prices and increases in capacity charges anticipated in 2026. Macroeconomic uncertainties projected into the first half of 2025 and a lower yield environment in China are also considered factors contributing to the perceived value in China Resources Power’s shares. These recent developments indicate a shift in confidence in the investment potential of China Resources Power, despite the challenges ahead.
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