CITIC Securities: The power sector is expected to experience a dual recovery opportunity in both fundamentals and valuations.

China International Capital Corporation (CICC) believes that the ongoing conflict between Iran and the Middle East continues to disrupt the global energy supply chain, highlighting the necessity of ensuring energy independence and controllability. China’s energy consumption mix is diversified, and the overall risk of dependence on foreign sources is controllable; the transition to clean energy has achieved notable results, but further development and improvement are still needed in the areas of infrastructure and high-end manufacturing. In response to the need to safeguard energy security and promote the energy transition, we expect electricity price policies to be introduced one after another to drive electricity prices to bottom out earlier and rebound, boosting investor enthusiasm in the power sector. The power sector is therefore expected to see a two-fold opportunity for both fundamental improvement and valuation recovery.

The full text is as follows

Public Utilities & Environmental Protection | Energy Security Value Becomes Prominent, Industry May Benefit from Re-Rating

The ongoing conflict between Iran and the Middle East continues to disrupt the global energy supply chain, highlighting the necessity of ensuring energy independence and controllability. China’s energy consumption mix is diversified, and the overall risk of dependence on foreign sources is controllable; the transition to clean energy has achieved notable results, but further development and improvement are still needed in the areas of infrastructure and high-end manufacturing. In response to the need to safeguard energy security and promote the energy transition, we expect electricity price policies to be introduced one after another to drive electricity prices to bottom out earlier and rebound, boosting investor enthusiasm in the power sector. The power sector is therefore expected to see a two-fold opportunity for both fundamental improvement and valuation recovery.

▍ Event:

The conflict between Iran and the Middle East has continued to escalate, with the targets expanding to energy infrastructure. According to reports by China News Service, among others, since the outbreak of the Iran–Middle East conflict, the Strait of Hormuz has been blocked and Qatar’s oil and gas production facilities have been attacked. As a result, the Middle East’s oil export volume has decreased by approximately 61%. The tightening of Middle East oil and gas resource exports has driven international oil and gas prices to rise rapidly; Brent crude oil prices have already broken through 100 USD per barrel, fueling global market concerns about energy security and supply stability.

▍ China’s energy consumption mix is diversified, and the overall risk of dependence on foreign sources is controllable.

According to data from the National Bureau of Statistics, in 2025, China’s total energy consumption was approximately 6.17 billion tons of standard coal. Of this, coal/oil/natural gas/primary electricity and others accounted for 51.4%/18.2%/8.7%/21.7%, forming a diversified energy supply pattern based on the resource endowment of “abundant coal, relatively scarce oil, and limited gas.” According to data from the General Administration of Customs and the National Energy Administration, in 2025 China’s external dependency rates for coal/crude oil/natural gas were 10%/76%/40%, respectively. Although dependency on imported oil and gas is relatively high, China’s energy security risk remains within a controllable range through power substitution and optimization of the energy mix.

▍ The transition to energy is producing strong results, but there are still challenges in infrastructure development and the growth of high-end manufacturing.

Guided by the “dual carbon” targets, China has continued to promote the construction of power sources such as green power and nuclear power, with a strong momentum in the development of clean energy. According to data from the China Electricity Council, in 2025, the proportion of non-fossil energy installed capacity nationwide increased to 60%, and the share of electricity generation rose to 35%, highlighting the effectiveness of the energy structure transition. However, challenges remain in the process of promoting the energy transition: in Northwest China, insufficient construction of UHV (ultra-high voltage) power transmission corridors and inadequate energy storage supporting facilities have led to difficulties in absorbing green electricity, weakening investor enthusiasm in the industry; advanced manufacturing areas such as fourth-generation nuclear power technologies and controllable nuclear fusion still require continuous investment in research and development, among other efforts. Overall, although China’s energy transition progress is moving quickly, it still needs ongoing capital investment and policy support to drive breakthroughs in related areas.

▍ With demands to ensure energy security and promote the energy transition, electricity prices are expected to benefit from policy support and achieve an earlier bottoming out.

At present, the power industry is under pressure from concentrated commissioning of generation capacity and the advancement of power market reforms, putting it in a phase of relatively loose supply and demand. Market-based electricity prices have fallen significantly, and industry profitability is under substantial pressure. However, as a stabilizer of energy supply, power plays a key role in helping the country ensure energy security, while also serving as an important driver to achieve the dual carbon goals on schedule. In March 2026, Liaoning introduced a nuclear power mechanism electricity pricing policy to provide nuclear power stations within the province with a reasonable rate of return, demonstrating the government’s willingness to provide policy backstops. We expect that in the subsequent period, provinces will continue to introduce similar policy support measures to push electricity prices to bottom out earlier than the industry’s supply-demand balance point and rebound, thereby boosting investor enthusiasm in power generation and supporting the industry’s long-term and steady development.

▍ Risk factors:

Electricity demand falls short of expectations; market transaction electricity prices decline sharply; fuel costs rise more than expected; risks related to renewable energy curtailment and absorption intensify; advancement of power system reform falls short of expectations.

▍ Investment strategy.

The Iran–Middle East conflict has exposed the fragility of the energy supply chain. The strategic value of power as a “stabilizing ballast” for China’s energy security is expected to receive a re-assessment. Against the backdrop of improving marginal policy sentiment and electricity price expectations bottoming out earlier, the power sector is expected to seize opportunities for both fundamental improvement and valuation recovery. We recommend nuclear power leaders that have the potential to benefit from routine normalization of unit approvals and the protection offered by mechanism-based electricity pricing; hydropower leaders with high-quality underlying assets and stable dividends; coal-power integrated enterprises that have advantages in upstream resources and can effectively hedge fluctuations in fuel prices; and H-share green power and H-share thermal power companies with low valuations and attractive dividend yields.

(Source: First Financial)