CGN Power stock target cut with Neutral rating due to flat power generation growth

On Saturday, JPMorgan adjusted its stance on CGN Power Co Ltd. (1816:HK) (OTC: CGNWF), downgrading the stock from Overweight to Neutral. The firm also set a new price target of HK$3.45, a decrease from the previous HK$3.60. The revision comes as the analyst predicts no significant earnings growth for the first half of 2024, contrasting with the consensus forecast of approximately 10% growth for the full year.

The analyst pointed out that the lack of growth in power generation and the expectation of stable tariffs are the primary reasons behind the tempered earnings outlook for CGN Power. Despite the company’s share price doubling since early 2023 and significantly outperforming the China Enterprises Index (HSCEI) by more than 100%, JPMorgan suggests a more cautious approach moving forward.

CGN Power’s current market performance reflects the investors’ confidence in nuclear power’s long-term growth potential and a preference for defensive stocks in the market. The stock is trading at 1.3 times its forecasted FY25 book value per share, which aligns with historical ratios seen between 2016 and the first half of 2017.

The analyst also noted changes in the operational environment, particularly concerning the tariff regime, which is now perceived as less rigid. Additionally, the uranium spot price, crucial for CGN Power’s operations, has surged approximately 60% since the beginning of 2023.

While the impact of fuel price fluctuations on CGN may take several years to materialize if spot prices remain elevated, the analyst advises investors to be mindful of the mid-term risks following the stock’s sharp recent re-rating.

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