China Utilities Sector Poised for Turnaround Amid Global Energy Price Increases
Orient Securities is bullish on the utilities sector, expecting China's electricity and natural gas prices to enter a new round of upward cycles due to global energy price increases. This trend is attributed to the reshaping international order and surging AI-related energy demand.
The research report by Orient Securities highlights that utilities, key physical assets, are poised for revaluation as they accommodate renewable energy generation. China needs to advance electricity market-based price reforms, with the power market gradually assigning full pricing to all attributes of electricity commodities.
According to the report, in 2Q26, earnings in the thermal power sector accelerated their decline. However, the period of the sharpest downward revision in earnings expectations may have already passed. The aggregate operating revenue of sampled thermal-power companies declined by 3.6% year over year, while consolidated net profit attributable to parent company fell by 37.4% y/y and 32.2% q/q.
The report also notes that hydropower and nuclear power earnings came under pressure in 2Q26, while new-energy profits continued to decline sharply. However, the firm expects the hydropower segment's year-on-year growth rate in 3Q26 to rebound compared with 2Q26.