"Big Banks" UBS: Investors' low expectations for domestic power equipment is a mistaken view, with DONGFANG ELEC as the top choice

UBS published a research report stating that conservatively estimating, each 1 GW gas turbine sold to the United States by Dongfang Electric (01072.HK) would increase its revenue by approximately 16% to 20%. The firm noted that investors generally believe there is no power shortage issue in China, and that the power infrastructure is relatively new, leading to low expectations for domestic power equipment. The firm believes this view is incorrect.

The firm estimates that China's medium-term electricity demand growth is 8-9%, which is double the market consensus of 4-5%. In the firm's forecast, which is above the market consensus, about 2.5 percentage points come from artificial intelligence, 1.5 percentage points from manufacturing, and 1 percentage point from electrification. Additionally, the firm sees significant replacement demand for coal-fired power plants, with approximately 420 GW (10% of total capacity) needing to be replaced within the next 5-8 years. Although some of this demand may be met by renewable energy or nuclear power, the firm believes investors are overlooking this replacement demand.

The firm has set a target price of 53.5 yuan for Dongfang Electric and reiterated its rating as "Buy," considering it a top choice in the Chinese energy sector