Earnings prospects of the mainland's energy sector have rarely been as cloudy as now, even though primary energy products such as crude oil, natural gas and coal are trading at record-high levels globally.
But if one believes that Beijing will not let a strategically important sector fail and consequently cause shortages, a market downturn can present opportunities to buy into the better-run energy stocks.
All eyes are on the capital, whose policies determine energy firms' profitability and investors' well-being.
Last week, Huaneng Power International, the listed unit of the nation's largest power producer, reported an 80 per cent dive in net profit last year because of a 21-month power tariff freeze amid spiralling coal costs. It was a far cry from the 13 per cent average profit growth it enjoyed in the previous two years.
Asia's largest oil refiner, China Petroleum & Chemical Corp (Sinopec), also warned at the start of the week of a more than 50 per cent drop in first-quarter profit amid hefty refining losses because of fuel price controls eroding its profit margins.
So far, only coal producers have been relatively unscathed; the sector's high fragmentation has made it difficult to implement price controls at the local level. Last year's profits at China Coal Energy and Yanzhou Coal Mining marginally beat analysts' projections, while China Shenhua Energy slightly dismayed with higher growth in operating costs.
Even so, analysts said coal firms had succumbed to Beijing's 'moral persuasion' to hold back price rises and been hurt by the state's discouragement of more lucrative exports via taxation and quota policies.
