UBS: Investors' low expectations for domestic power equipment are a mistaken view. Dongfang Electric Corporation (01072) is preferred.

UBS released a research report stating that conservative estimates suggest that Dongfang Electric Corporation (01072) will increase its income by approximately 16% to 20% for every 1GW gas turbine sold to the United States. The bank points out that investors generally believe that China does not have a shortage of electricity and that the country's electricity infrastructure is relatively new, leading to low expectations for domestically produced power equipment. The bank believes that this view is incorrect and has set a target price of 53.5 Hong Kong dollars for Dongfang Electric Corporation, reaffirming its "buy" rating and considering it the top choice in the Chinese energy sector. The bank estimates that China's mid-term electricity demand will grow by 8-9%, which is twice the market consensus of 4-5%. The bank's forecast is higher than the market consensus by approximately 2.5 percentage points from artificial intelligence, 1.5 percentage points from manufacturing, and 1 percentage point from electrification. Additionally, the bank sees a significant replacement demand for coal-fired power plants, with around 420GW (10% of total capacity) needing to be replaced in the next 5-8 years. While some of this demand may be taken up by renewable energy or nuclear power, the bank believes that investors are overlooking this part of the replacement demand.