Damo: The target price of Dragon Power (00916) reaches HK$6, reaffirming that “in sync with the market” profit in the second half of the year may be disappointing

The Zhitong Finance App learned that Morgan Stanley released a research report saying that although the valuation of Longyuan Electric Power (00916) is not high, it faces deterioration in wind resources and pressure on electricity prices, and the wind power business is weak, so the target price for H shares was reduced by 20% from HK$7.5 to HK$6; Longyuan Electric (001289.SZ) A-share target price was lowered by 14% from RMB 17 to RMB 14.6, and AH shares all maintained a “sync with the market” rating.

The bank pointed out that Longyuan Electric Power's net profit for the first half of the year was RMB 2,527 million, down 28.2% year on year; net profit for the second quarter was RMB 827 million, down significantly from RMB 1.7 billion in the first quarter. Revenue for the first half of the year was RMB 14.6 billion, down 6.5% year on year. Wind power generation fell 10.2% month-on-month in the second quarter, and wind power revenue fell 19.5% month-on-month, reflecting pressure on feed-in tariffs. Other revenue, including VAT refunds, was RMB 292 million in the first half of the year and RMB 640 million in the same period last year.

Morgan Stanley lowered Longyuan Power's 2026 and 2027 revenue forecasts by 15% and 11%, respectively, and profit forecasts by 45% and 32%, respectively, to reflect a number of factors: wind power resources were weaker than expected in 2026 due to the El Niño phenomenon, causing wind power generation to fall below expectations; the increase in market transaction electricity prices further pressured wind power feed-in prices; and the cancellation of VAT rebates for onshore wind power projects from November 2025. The forecast predicts that wind power will usually recover after El Niño, so it is predicted that the utilization hours from 2027 to 2028 will recover moderately. The bank assumes a 12% year-on-year decline in wind power utilization hours in 2026, and a 10.9% decline in the first half of the year.

The bank believes that although the valuation of Longyuan Electric Power is not expensive. The forecast market accounts for H shares and 1.6 times in 2027 are expected to be 0.5 times and 1.6 times, respectively, but profits in the second half of the year may still be disappointing. Coupled with the limited potential upward space for renewable energy electricity price policies, and the return rate of new wind power and solar energy projects may decline after “Document No. 136”, so it maintains a “in sync with the market” rating.