Boc International issued a research note that it upgraded CGN Power (01816) to “buy”, raised its 2022-24 earnings forecast by 4%-6%, and raised its target price to HK $2.50. It believes the current share price is attractive given the improving fundamentals and regulatory environment. In an operation update on July 6, the company’s management shared the latest progress of Taishan no.1: the overhaul work has been basically completed, and the restart and grid connection work of the unit is progressing in an orderly manner. Market-based electricity prices, up 13.5% year-on-year in the first half, will be the main driver of earnings this year.
The report cited management as saying that the maintenance costs of taishan 1 in the past year have been accounted for in the current period, and there will be no one-time large costs after the unit restarts. This statement relieved the bank’s biggest concerns and is believed to help restore investor confidence, with the bank conservatively expecting taishan 1 to resume grid-connected power generation by the end of the third quarter. In addition, market tariffs for nuclear operators have risen in tandem with a 20 per cent rise in thermal power prices. Although not as high as thermal power, the 13.5% market electricity price increase achieved by the company in the first half was enough to drive solid earnings growth due to stable nuclear operating costs.
Boc International said a change in attitude towards nuclear power in Europe, which on Wednesday formally added nuclear power and natural gas to the list of sustainable economic activities covered by its classification system, would boost its ESG appeal. Although there are some strings attached (mainly radioactive waste disposal and the use of fault-tolerant fuels in nuclear countries), the bank thinks this will attract incremental capital into nuclear investment. About 33.9 percent of European funds were previously unable to invest in nuclear power, according to Eurosil data, and the revised classification is expected to increase interest in nuclear power and make CGN more attractive.
Post time: Jul-08-2022
