By Yongchang Chin
Shares of Chinese electricity generators rose Thursday, with investors expecting better profits as thermal coal prices stabilize well off their recent highs.
Huadian Power International Corp. shares gained 12%, Huaneng Power International Inc. rose 8.0% and China Power International Development Ltd. added 8.3%. All three companies' shares have risen by more than 20% from a month ago, with Huadian's one-week gains at 31%.
Bocom International analyst Wallace Cheng attributed the bullish investor sentiment to lower prices of coal, the key input in the companies' power production.
"We believe earnings visibility has improved after thermal coal price turned less volatile and retreated more than 50% off the peak," he said in a note.
The January contract for thermal coal on the Zhengzhou Commodity Exchange was down 2.1% on Thursday at 812.60 yuan ($128.07) a ton, taking one-month declines to 9.9%, according to FactSet.
Mr. Cheng said investors are also responding to market rumors that Beijing will lower prices of long-term thermal-coal contracts to Chinese power companies, which would reduce operating costs--though he noted that there has been no formal confirmation of this.
Bocom rates China Power as its top buy in the sector, citing likely improving electricity-production margins and the company's recent series of disposals that will lower its gearing ratio. The brokerage interpreted the disposals as "a positive signal that [China Power] is now more ready to execute its renewable expansion plan."
Bocom has a buy rating and HK$5.28 target price on China Power. Its shares closed at HK$4.97.
Write to Yongchang Chin at email@example.com
(END) Dow Jones Newswires