Daily Brief Utilities: CGN New Energy Holdings, Electric Power Development C, China Gas Holdings and more

In today’s briefing:

CGN New Energy Holdings: Character Building

A “valuation system with Chinese characteristics” has the media, ostensibly, discussing whether this implies a premium for SOEs and companies aligned with national goals.
In early 2020, SOE-backed clean energy play CGN New Energy Holdings (1811 HK) was subject to a potential privatisation from its parent; but it failed to materialise.
During the 14th and 15th Five-Year Plans (2021-30) period, China’s installed capacity for wind and solar power is expected double.

Operating under the brand name J-Power, Electric Power Development C (9513 JP) is leading Japan’s efforts to make carbon dioxide-free electricity by 2050.
The company’s investments in gasification and carbon dioxide separation technology and carbon dioxide-free hydrogen generation from coal are close to commercialisation.
With the technology to serve other power producers to develop their own environmentally-friendly power projects, J-Power could turn into a global-leader in the power generation space in the next decade.

While China Gas Holdings (384 HK) expects better gas dollar margin HoH, there are still high profit uncertainties and its full-year operational guidance does not look exciting.
The expectation of flat to 10% YoY decline in new residential household connections is not encouraging. With 1H FY23 profit only amounted to 42% of consensus, we see downgrade risks.
Despite achieving positive free cash flow, its high gearing of 69.9% (+4pp HoH) is still very stretched relative to peers. We prefer Kunlun Energy (135 HK).

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