Morgan Stanley: Downgrades China Longyuan Power Group Corporation (00916) target price to HK$6, reiterates "In line with the market." Second half profit may be disappointing.

Morgan Stanley released a report stating that although China Longyuan Power Group Corporation (00916) is not highly valued, it faces deteriorating wind resources and price pressures on electricity without favorable policies, leading to weak wind power operations. Consequently, it has lowered its target price for H shares from HKD 7.5 to HKD 6, a reduction of 20%; the target price for A shares of China Longyuan Power Group Corporation (001289.SZ) has been cut by 14% from RMB 17 to RMB 14.6, and both AH shares maintain a "market perform" rating. The bank pointed out that China Longyuan Power Group Corporation's net profit for the first half of the year was RMB 2.527 billion, a year-on-year decline of 28.2%; the net profit in the second quarter was RMB 827 million, significantly down from RMB 1.7 billion in the first quarter. Revenue for the first half of the year was RMB 14.6 billion, a year-on-year decrease of 6.5%. In the second quarter, power generation from wind energy fell by 10.2% quarter-on-quarter, and wind power revenue decreased by 19.5% quarter-on-quarter, reflecting pressure on grid-connected electricity prices. Other income, including value-added tax rebates, amounted to RMB 292 million in the first half of the year, compared to RMB 640 million in the same period last year. Morgan Stanley has each lowered its revenue forecasts for China Longyuan Power Group Corporation for 2026 and 2027 by 15% and 11%, respectively, and its profit forecasts by 45% and 32%, reflecting several factors: in 2026, the El Nio phenomenon is expected to weaken wind resources more than anticipated, leading to lower-than-expected wind power generation; increasing market trading volumes are putting further pressure on wind grid-connected electricity prices; and the cancellation of value-added tax rebates for onshore wind projects starting from November 2025. The bank expects that wind power typically recovers after El Nio, and thus predicts a moderate recovery in utilization hours for 2027 to 2028. It assumes a year-on-year decrease of 12% in wind power utilization hours for 2026, with a decline of 10.9% in the first half of the year. The bank believes that although China Longyuan Power Group Corporation is not considered expensive, with predicted price-to-book ratios for H shares and A shares in 2027 at 0.5 times and 1.6 times, respectively, profits in the second half of the year may still disappoint. Coupled with limited potential for upward adjustment in renewable energy electricity price policies and potential declines in the return on new wind and CECEP Solar Energy projects following Document No. 136, it maintains a "market perform" rating.