BofA Securities Utilities – HK China (H A): Power up with El Nino hot summer? Upgrade CGN Power to Buy
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BofA Securities notes that the El Nino weather phenomenon is likely to bring unusually hot summer temperatures to China, significantly boosting electricity demand across the country. In response, the bank has upgraded CGN Power (1816.HK) from Neutral to Buy. As a pure-play nuclear operator, CGN Power is uniquely positioned to benefit from rising baseload power requirements.
Peak electricity load during the summer of 2026 is projected to increase by 5-7% year-over-year, reaching approximately 1.3 billion kilowatts. This surge in cooling demand will elevate nuclear utilization hours, directly enhancing CGN Power's profitability. Unlike coal-fired power, nuclear electricity prices remain stable and insulated from market-based coal pricing volatility, offering investors greater earnings certainty. Bofa has consequently raised its target price for CGN Power from HKD 2.8 to HKD 3.2.
While thermal power companies such as Huaneng Power International and Huadian Power International may benefit from declining coal prices, their ratings remain unchanged. Hydropower operators could see upside from increased rainfall, and solar or wind generation typically peaks in summer, though grid absorption constraints may cap financial gains.
May spot electricity prices displayed regional divergence, highlighting market complexity. Key downside risks include El Nino failing to meet intensity expectations and limited improvement in nuclear utilization hours.
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