Longyuan Power H/A maintains Buy: weak fundamentals but attractive valuation

Overview

This report is HSBC's review of China Longyuan Power's 2025 results and valuation update. It argues that the company's near-term earnings are being weighed down by lower wind utilization hours, weaker power prices, curtailment, rising operating expenses, and higher depreciation and amortization, with downside risk still present in 2026. However, the market has already largely absorbed the weak fundamentals, and the stock's main driver is no longer near-term earnings but valuation and policy expectations. Based on DCF valuation, HSBC maintains Buy ratings on both the H-share and A-share while lowering target prices.

Core views

The key views are as follows: first, 2025 profit fell sharply, and the pressure was even greater in 4Q25, showing that wind utilization, power prices, and cost pressures remain the main drags. Second, the power market in 2026 may continue to face oversupply and power prices will remain under pressure, although the decline may slow; about 70% of the company's 2026 electricity sales have already been locked in through annual power purchase agreements or contracts for difference. Third, incremental demand from data centers and green fuels in 2027-28 could help reset power prices. Fourth, the company's H-share trades at about 0.7x 2026 P/B, below the 0.8-1.1x range for other state-owned power utilities; if supportive renewable-energy policies emerge, a valuation re-rating could be triggered.

Analysis framework

The report combines a results review, segment operating analysis, earnings forecast revisions, and DCF valuation. HSBC first updated revenue, expenses, tax rate, installed capacity, utilization hours, and power price assumptions based on 2025 actual results, then reduced its 2026-27 earnings forecasts accordingly, and finally refreshed the H-share and A-share target prices through the DCF model.

Methodology notes

• Valuation methodsDCF

  discounted cash flow valuation

  HSBC uses DCF as the basis for target prices, lowering the H-share and A-share target prices to HKD8.60 and RMB20.70, respectively.

• earnings_revisionforecast_revision

  earnings forecast revision

  Based on 2025 actual operating data, the report raises assumptions for operating expenses and income tax rate, lowers assumptions for utilization hours and electricity sales, and accordingly cuts 2026-27 earnings forecasts.

• rating_frameworkHSBC equity rating bands

  the upside versus the current share price determines the rating band

  HSBC discloses that when a target price is more than 20% above the current share price, the stock is usually classified as Buy; in this report, the H-share and A-share target prices imply upside of 20.6% and 24.1%, respectively.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China Longyuan Power H-share (916 HK)

  Core coverage name

  Strengths

  Low valuation, more than 20% upside, better cash flow from renewable energy subsidy collection, and potential re-rating from policy catalysts.

  Weaknesses

  Lower wind utilization hours, weaker power prices, and rising expenses and depreciation/amortization mean 2026 earnings still face downside risk.

  Comparison

  The H-share trades at about 0.7x 2026 P/B, below the 0.8-1.1x range for other state-owned power utilities.

  Risks

  Higher-than-expected curtailment, continued power price declines, weaker-than-expected policy support, and project returns below expectations.

• China Longyuan Power A-share (001289 CH)

  Core coverage name

  Strengths

  It also remains rated Buy, with 24.1% implied upside at the target price, and the new capacity additions are mainly wind power, which has a better return outlook.

  Weaknesses

  Earnings forecasts have been reduced, assumptions for new solar capacity have been cut significantly, and the current oversupply in the near-term power market is still depressing prices.

  Comparison

  The A-share target price of RMB20.70 still leaves substantial upside versus the current price of RMB16.68.

  Risks

  A-share valuation volatility, weak domestic power supply-demand conditions, and the impact of the phase-out of wind power VAT rebates on profits.

• China renewable power sector

  Industry backdrop and valuation driver

  Strengths

  Incremental demand from data centers and green fuels may improve power prices in 2027-28; supportive policies could act as a valuation catalyst.

  Weaknesses

  The power market may continue to be oversupplied in 2026, and the rising share of market-based trading and low-priced parity projects is pressuring power prices.

  Comparison

  The valuation range for state-owned power utilities is 0.8-1.1x 2026 P/B, while Longyuan's H-share trades below that range.

  Risks

  Slower-than-expected policy implementation, insufficient recovery in power demand, and curtailment affecting utilization hours.

Key data

• 2025 net profitRMB4,526mUnder PRC accounting standards, this was down 29% from the previous year and below the market consensus and HSBC's estimate.
• 2025 after-tax profit excluding discontinued operations-28% y-o-yThe discontinued operations mainly involved the coal-fired power business.
• 4Q25 after-tax profit excluding discontinued operations-83% y-o-yThis indicates significant quarterly earnings pressure.
• 2026-27 earnings forecast revision2026e -23%; 2027e -13%This reflects lower assumptions for curtailment, power prices, and utilization hours.
• H-share target priceHKD8.60Prior: HKD9.10, implying 20.6% upside to the current price of HKD7.13.
• A-share target priceRMB20.70Prior: RMB22.10, implying 24.1% upside to the current price of RMB16.68.
• 2026 H-share P/B0.7xBelow the 0.8-1.1x range for other state-owned power utilities.
• 2025 wind on-grid tariffRMB475/MWhIncluding VAT, down 10% y/y.
• 2025 solar on-grid tariffRMB318/MWhDown 5% y/y.
• 2025 new installed capacityWind power 1.7GW; solar power 3.1GWThe 2026 new capacity guidance is 4.5GW, of which more than 90% is wind power.
• 2025 renewable energy subsidy collectionRMB12bnThis compares with RMB5bn in 2024 and helps support financing for new projects.

Impact & implications

For investors, the report sends the signal of 'earnings downgrades but valuation support remains'. Near-term profit and power prices are still under pressure, and the fundamentals have not reversed; however, if policy becomes more favorable to renewables, or if demand from data centers and green fuels improves medium-term power supply and demand, the low valuation could magnify share-price upside. Investors need to track power prices, curtailment, installed-capacity returns, subsidy collections, and policy catalysts, rather than judging the stock's direction solely on short-term earnings changes.

Risks

• Higher-than-expected grid curtailment causing wind and solar utilization hours to decline further.
• Oversupply in the power market driving on-grid power prices down further.
• The phase-out of wind power VAT rebates putting pressure on 2026 earnings.
• Continued increases in operating expenses, staff costs, insurance costs, and depreciation/amortization.
• Renewable-energy support policies or subsidy collections falling short of expectations.
• Lower-than-expected returns on new capacity additions, especially under pressure from solar projects.

What to watch

• Whether the pace of power price declines in 2026 slows as the company expects.
• Execution of annual PPAs or contracts for difference covering about 70% of the company's electricity sales.
• Whether demand from data centers and green fuels can help reset power prices in 2027-28.
• Changes in renewable-energy support policies, subsidy disbursement, and consumption/dispatch policies.
• The delivery of the 4.2GW wind capacity assumption and the 4.5GW full-year new capacity guidance.
• Whether curtailment rates, utilization hours, and electricity sales continue to fall short of expectations.