Huaneng Power and Beijing Datang should gain from China's power shortage problem
China's gross domestic product hit 8.2 per cent in the first half despite Sars and is expected to keep steaming ahead. And the powers behind the throne of China's industrial juggernaut are independent energy producers such as Huaneng Power International and Beijing Datang Power Generation.
According to Lehman Brothers analyst Angello Chan, the former will increase generation this year by 25 per cent, the latter by 16 per cent.
As China continues to modernise and develop at breakneck speed, demand for electricity will have to keep pace. The market knows this. Shares in Huaneng Power and Beijing Datang rose more than 60 per cent from late April until the middle of this month.
Both companies are expected post results next month, and the rapid increase in generation has led Goldman Sachs to raise its earnings forecasts for Huaneng by 11.4 per cent this year, 19.9 per cent next year and 26.1 per cent in 2005. Nomura analyst Pierre Lau expects Beijing Datang's net profits will grow 25.1 per cent year on year.
However, despite such positive fundamentals, the stock's surge has spluttered in recent weeks.
An European brokerage analyst said the stocks had been rising as if there were no questions that needed asking - he said there were still a few black clouds on the power generators' horizons. For a start the government increased pollution charges on all sectors from this month. The charge for independent power producers sulphur emissions will rise 50 per cent year on year for the next three years.