Bank of America Securities: Raises target price for HUADIAN POWER (01071) to HKD 3.7, reiterates "Underperform" rating.

Bank of America Securities has released a research report stating that Huadian Power International Corporation (01071) is still facing short-term profit pressure from rising coal prices. It has reiterated its "underperform" rating but raised the target price for H-shares from HKD 3.5 to HKD 3.7, while the target price for A-shares has been adjusted from CNY 4.1 to CNY 4.3, reflecting better-than-expected electricity prices, a decline in financing costs, and increased income from carbon trading. The report pointed out that the improvement in electricity prices in the second quarter was mainly driven by spot and monthly market prices rising with coal prices, as well as the capacity tariff income being spread over lower electricity generation. Shandong remains the most mature electricity market in mainland China, with a tight linkage between electricity prices and spot prices, facilitating the pass-through of fuel costs. Management expects the benchmark coal price in Qinhuangdao to fluctuate around CNY 850 per ton in the second half of the year, but the low coal price base in the third quarter of last year will make future fuel costs face a higher comparative base. Gas generation fell by over 10% year-on-year in the first half of the year, but profitability improved as the company deliberately reduced operating during low-profit periods and focused on peak demand generation. The capacity charge mechanism in Tianjin and Guangdong also provided support. The organization has raised its profit forecasts for 2026 to 2028 by an average of about 20%, with key assumptions including a flat year-on-year electricity price in 2026, previously forecasted to decline by 3%; a debt cost of 2.3%, down from 2.5%; and non-operating income of CNY 1 billion, up from CNY 713 million.