Bank of America Securities has initiated coverage on DONGFANG ELEC (01072) with a "Buy" investment rating and a target price of HK$33, which equates to a projected 2026 price-to-earnings ratio of 26 times. The firm is optimistic about DONGFANG ELEC for several reasons: orders for thermal and nuclear power equipment secured between 2021 and 2025 are expected to strongly drive revenue recognition; the Yarlung Tsangpo River project (a dam project with capital expenditure reaching RMB 1.2 trillion) offers long-term profit contributions; there is potential for expansion in gas turbine exports; and the power station services business (including operations, maintenance, and flexibility retrofits) is set for sustained growth. Bank of America predicts that DONGFANG ELEC will achieve a compound annual growth rate of 13% in net profit from 2025 to 2027, benefiting from an upward cycle in China's power capital expenditure. The company holds approximately a 40% market share in the nuclear and hydroelectric equipment markets and over 30% in the thermal power equipment market, positioning it as a primary beneficiary of China's large-scale thermal and nuclear power investments from 2021 to 2025. Revenue recognition from equipment orders, coupled with rising average selling prices, is expected to drive steady net profit growth. Furthermore, the Yarlung Tsangpo River project is anticipated to contribute over RMB 300 million in profit annually between 2031 and 2035. Key risks include a potential slowdown in power capital expenditure, declining profit margins, and slower-than-expected progress in gas turbine exports.
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