According to a research report from UBS, a conservative estimate suggests that for every 1GW of gas turbines DONGFANG ELEC (01072) sells to the United States, its revenue could increase by approximately 16% to 20%. The report indicates that investors generally hold the view that China does not face power shortages and that its power infrastructure is relatively new, leading to low expectations for domestic power equipment manufacturers. UBS believes this perception is mistaken. The firm has set a target price of HK$53.5 for DONGFANG ELEC, reaffirmed its "Buy" rating, and identified it as the top pick within China's energy sector. UBS estimates that China's medium-term electricity demand growth will be 8-9%, which is double the market consensus of 4-5%. Within this above-consensus forecast, approximately 2.5 percentage points are attributed to artificial intelligence, 1.5 percentage points to manufacturing, and 1 percentage point to electrification. Furthermore, the report highlights significant replacement demand for coal-fired power plants, with about 420GW (representing 10% of total capacity) needing to be replaced within the next 5 to 8 years. While some of this demand may be met by renewable or nuclear energy, UBS believes investors are overlooking this substantial replacement requirement.
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