Maintain Neutral on China Resources Power; near-term improvement in electricity prices but coal prices and project returns still weigh on valuation

Overview

This is a company research update by J.P. Morgan on China Resources Power (0836.HK), based on post-Global China Summit discussions with management, focusing on thermal power tariffs, coal prices, data center electricity demand, renewable energy capital expenditures, and valuation. The report maintains a Neutral rating with a target price of HK$17.00, below the disclosed current price of HK$20.18.

Core views

The core view of the report is that operating trends are mixed: in the short term, rising spot/monthly electricity prices in coastal regions support thermal power earnings; 4M26 thermal power earnings were stable year over year, showing that improvements in capacity payments and spot electricity prices can partly offset falling contracted tariffs and rising coal prices. However, coal supply and demand may tighten from 3Q, and import volatility remains a cost risk. Data center electricity demand and government encouragement of green power usage provide a long-term demand opportunity, but the green power + ESS supply solution is still in the economics evaluation stage. On renewables, the company plans to add about 5.5GW this year and is being more cautious in project selection in provinces where absorption conditions are deteriorating.

Analysis framework

The report mainly uses management meeting takeaways, near-term judgments on electricity and coal price trends, observations on business-segment capital expenditures, and an SOTP valuation framework for analysis. The investment view also references thermal power asset earnings stability, renewable project returns, demand strength in coastal provinces, coal prices, and the impact of policy on the floor for thermal power tariffs.

Methodology notes

• Valuation methodsSOTP

  Sum-of-the-parts valuation

  The target price of HK$17/share is based on the SOTP method, assigning different P/B multiples to thermal power assets, the spun-off A-share renewable segment, and the H-share renewable segment, then combining them into an overall valuation.

• Valuation multiplesP/B and P/E

  Book value and earnings multiple valuation

  The report applies a target P/B of 0.8x to thermal power assets, 1.2x P/B to the spun-off A-share renewable segment with a 20% holding company discount, and 0.7x P/B to the H-share renewable segment; the target price implies 6.4x 2026E P/E and 0.8x 2026E P/B.

• Risk sensitivitySensitivity to electricity prices, coal prices, and utilization hours

  Utility earnings drivers

  The report lists coal prices, utilization hours, electricity prices, and renewable project returns as the main upside or downside risk variables for the rating and target price.

Asset mapping & comparison

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

• China Resources Power (0836.HK)

  Core covered name

  Strengths

  A large listed Chinese power company, with power plants mainly located in high-demand regions such as East China, Central China, and South China; the rebound in spot/monthly electricity prices in coastal regions supports near-term earnings.

  Weaknesses

  Declining contracted tariffs, rising coal prices, deteriorating renewable energy absorption, and the removal of the floor on thermal power tariffs create pressure.

  Comparison

  Compared with pure-play renewable operators, the company is exposed to both the thermal power cost cycle and renewable growth; compared with inland power assets, demand and tariff elasticity in coastal provinces draw more attention.

  Risks

  Coal prices above expectations, utilization hours below expectations, electricity prices below expectations, and renewable project returns below expectations.

• Thermal power assets

  Main earnings and cost-sensitive segment

  Strengths

  Capacity payments and improved spot electricity prices since April helped keep 4M26 thermal power earnings stable year over year.

  Weaknesses

  Rising coal prices directly compress profits; lower contracted tariffs remain a drag.

  Comparison

  Thermal power assets are valued at a target P/B of 0.8x, reflecting both earnings stability and policy/cost risks.

  Risks

  Thermal coal supply and demand tightening from 3Q, volatility in imported coal, and resonance between demand and coal prices driven by summer heat.

• Renewable power assets

  Growth and capital expenditure focus

  Strengths

  The plan is to add about 5.5GW this year, allowing continued expansion in regions with stable tariffs and utilization rates.

  Weaknesses

  Deteriorating absorption conditions in some provinces are making new project selection more cautious.

  Comparison

  The valuation multiple for the spun-off A-share renewable segment is higher than that for the H-share segment, but the report applies a 20% holding company discount to the spun-off A-share segment.

  Risks

  Renewable project returns below expectations, worsening curtailment, and declining capital expenditure efficiency.

• Data center/AIDC green power + ESS demand

  Potential long-term incremental demand

  Strengths

  The government encourages data centers to use green power, and management believes data center electricity demand may grow more than threefold during the 15th Five-Year Plan period.

  Weaknesses

  Projects are still at an early evaluation stage, and electricity price levels, energy storage costs, and transmission/distribution network construction costs remain unclear.

  Comparison

  Compared with traditional industrial power demand, data centers may provide more stable long-term power contracts, but upfront infrastructure investment and return calculations are more complex.

  Risks

  Insufficient project economics, contracted tariffs below expectations, and transmission/distribution investment costs above expectations.

Key data

• Current priceHK$20.18Price disclosed on the report cover.
• Target priceHK$17.00The target price expiry date is 2026-12-31.
• RatingNeutralThe report explicitly maintains a Neutral rating.
• Implied upside/downsideabout -15.8%Roughly calculated based on the HK$17.00 target price and the HK$20.18 current price, excluding dividends.
• New renewable installed capacity planabout 5.5GWManagement guided for about 5.5GW of new renewable installed capacity this year.
• Qinhuangdao 5,500 kcal thermal coal price>Rmb800/tonThe report says it has risen about 20% year to date.
• Data center power demandmay grow more than threefold during the 15th Five-Year Plan periodManagement mentioned the potential boost to electricity consumption from computing power demand.
• Valuation implied by target price6.4x 2026E P/E; 0.8x 2026E P/BFrom the valuation section of the report.

Impact & implications

For investors, the short-term focus is whether rising electricity prices in coastal regions are sufficient to offset the rebound in coal prices, and whether thermal power earnings can remain stable. Over the medium to long term, green power demand from data centers and the return of high-end manufacturing may improve electricity demand in some coastal areas, but project returns, transmission and distribution network construction costs, and renewable energy absorption will still determine whether incremental value can be realized. The target price is below the current price and the rating remains Neutral, indicating that the report sees positives and risks as broadly balanced and has not yet formed a clear bullish investment conclusion.

Risks

• Coal prices above expectations, especially if imported coal volatility and tighter supply-demand in 3Q increase cost pressure.
• Utilization hours below expectations, which could weaken earnings for both thermal power and renewable assets.
• Electricity prices below expectations, or more downside pressure from changes in the thermal power pricing mechanism.
• Renewable project returns below expectations, especially in provinces with worsening absorption conditions.
• Data center green power + ESS project economics falling short of expectations, and transmission/distribution network construction costs exceeding expectations.
• J.P. Morgan discloses that it may have business relationships with the covered company, and investors should be aware of potential conflicts of interest.

What to watch

• Whether spot and monthly electricity prices in coastal provinces remain elevated over the coming months.
• Whether thermal coal prices continue to stay above Rmb800/ton, and whether imported coal supply remains stable.
• Coal supply and demand in 3Q and inventory levels at major independent power producers.
• Execution progress and regional distribution of China Resources Power's approximately 5.5GW new renewable installed capacity plan.
• Whether data center green power + ESS projects move from the evaluation stage to signed contracts.
• Policy changes regarding the thermal power pricing mechanism, renewable energy absorption, and green power use by data centers.