China utilities 2015 outlook Investment rising:Green and clean energy to lead sector growth

Green and clean energy: Two birds, one stone

    We believe that government investment in China will remain focused on cleanenergy related sectors, such as renewable energies and environmentalprotection, to achieve Beijing’s twin goals of stabilising domestic economicgrowth and clamping down on pollution/emissions. Heading into 2015F, acrossthe China utilities universe, in order of preference by sector, we like windmost, followed by nuclear, water, gas and IPPs.

    Wind power: Set for a rebound

    The share price weakness in the wind power segment in 2014 was solely dueto weak wind speeds. We expect a rebound in 2015F on: 1) the recovery inwind speeds since 4Q14, which has provided a good start for 2015; 2)promotion of UHV lines; and 3) potential favourable policies such as RPS. Ourtop wind power picks are Huaneng RE and Huadian Fuxin.

    Nuclear power: Government stance is the key

    The resumption of new nuclear power project approvals, higher visibility on 3Gtechnology projects and inland nuclear power projects are major catalysts. Ourtop nuclear power pick is CGN Power.

    Water & environment: An investment year for water pollution control。

    With the preliminary approval of the Action Plan of Water Pollution Control inDec 2014, we look for sustained steady growth in 2015F, backed by provincialgovernment targets. Our top picks are Sound Global and BEW.

    Gas distributors: Higher expectations in 2H15F

    Short-term pressure on gas sales volume remains from the 2014 gas cost hikeand the recent oil price weakness. Recovering oil prices or any cut in city-gateprices are potential positive catalysts. Our top pick is China Gas.

    IPPs: Stable 2015 with reform a long-term catalyst

    Despite flat earnings growth y-y, decent dividend yields and potential parentasset injections may offer share-price support. Ongoing power sector reformshould bring in long-term benefits for IPPs. Our top pick is CPID.