China’s nuclear power equipment makers deserve a closer look, say analysts

China’s ambitious nuclear power build-out programme, coupled with potential export agreements, may add up to brighter days for the sector

PUBLISHED : Tuesday, 27 October, 2015, 3:31pm
UPDATED : Thursday, 01 September, 2016, 12:00pm

China’s nuclear power sector is beginning to light up in an interesting way.

An index of 44 nuclear-power related companies listed in Shenzhen and Shanghai, known as the CSI Nuclear Energy & Power, is up 17.1% so far in October. The recent advance is a rare bright spot for the sector, which has been suffering from an extended slump, along with much of world’s nuclear power industry, in the wake of the Fukushima Daiichi disaster.

The questions facing investors now, is whether the recent gains, not to mention the spotlight on the sector from China’s nuclear power agreements signed with Britain last week, add up to better times ahead for the China’s nuclear equipment makers.

The stakes are huge. China’s own domestic nuclear build-out programme is massive. As of July, China has 26 nuclear power plants operating, and a further 25 under construction, according to the World Nuclear Association.

That however, represents only what’s been on the drawing board for years. Looking ahead to 2020 China will need to initiate construction of 6GW to 8GW worth of nuclear power projects every year on average for the next five years, according to calculations by UBS. If Beijing adopts the enlarged target of 150 GW worth of nuclear power capacity by 2030, authorities will need to approve and commence the construction of 10 GW worth of nuclear power projects each year on average for the next 10 years, according to UBS.

“We believe China is entering a booming cycle of nuclear power plant construction,” wrote UBS analysts Bonan Li in an inaugural report on the sector dated September 2.

UBS said it favoured Hong Kong-listed Shanghai Electric as its top pick to benefit from the boom in nuclear power construction. Shanghai Electric’s shares have risen 16.5 per cent year to date, and are up 41 per cent in the past year. The share closed Tuesday’s trade at HK$4.81, little changed from its level five years earlier. UBS said it recommended that investor buy Shanghai Electric shares, and issuing a price target per share of HK$5.50 in a year. UBS said it had a “neutral” on fellow Hong Kong-listed nuclear power equipment makers Dongfang Electric Corporation and Harbin Electric. The shares of the two companies have risen 20 per cent and 12 per cent, respectively, since the start of October.

Analysts from Founder Securities named nuclear power valve manufacturer SUFA Technology Industry, rival Jiangsu Shentong Valve, and nuclear power equipment maker Sichuan Danfu Compressor as potential beneficiaries of an expected increase in exports of Chinese nuclear-power technology.

Based on existing contracts and preliminary agreements, during the next five years, China could possibly get eight nuclear exports deals and invest or build 21 nuclear reactors overseas, including two in Pakistan, two in Romania, two in Turkey, three in the UK, four in Argentina, and eight in South Africa, according to Founder Securities, which cited statistics from International Energy Agency.

The brokerage cautioned that whether the deals will materialise depends on the willingness of overseas buyers to use Chinese technology. China’s lack of experience in the economics of nuclear power and competition from rival technologies from developed countries were cited as potential risks that could derail China’s efforts to win the contracts.