Citigroup Foresees Power Sector Underperformance Due to Rising Coal Costs Squeezing Margins

Stock News05-18

Citigroup has issued a research report indicating that despite rising coal prices, the share prices of China's independent coal-fired power producers (IPPs) have increased by approximately 20% over the past three months. The bank attributes this rally primarily to several factors: tariff adjustments in some regions to offset higher costs, spillover effects from U.S. utility stock gains amid power supply concerns, capital inflows linked to AI-related investments, the sector's previous underperformance relative to the broader market, and expectations of high dividend payouts in 2025.

However, Citigroup anticipates that investor focus will shift back to the companies' fundamentals. It expects these power producers to face weaker performance ahead, driven by narrowing profit margins due to elevated coal costs, coupled with the typical share price pressure following dividend ex-dates in July.

The firm has assigned a "Sell" rating to several major players in the sector, including HUANENG POWER (00902.HK), CHINA RES POWER (00836.HK), and HUADIAN POWER (01071.HK).

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