CITIC Securities: The power sector is expected to experience a dual recovery opportunity in both fundamentals and valuations.

CITIC Securities believes that the ongoing Iran-Iraq conflict continues to disrupt the global energy supply chain, highlighting the need for energy self-reliance and controllability. China’s energy consumption mix is diverse, and the overall risk of dependence on foreign sources is controllable. The transition to clean energy has achieved notable results, but development and improvement are still needed in infrastructure and high-end manufacturing. Based on the demand to ensure energy security and advance the energy transition, we expect electricity pricing policies to be rolled out one after another to drive power prices to bottom out earlier and rebound, boosting investor enthusiasm in the power sector. The power sector is expected to capture opportunities for a dual repair of fundamentals and valuations.

The full text is as follows

Utilities & Environmental Protection ｜ Energy Security Value Becomes Prominent, Industry May Benefit from Re-rating

The ongoing Iran-Iraq conflict continues to disrupt the global energy supply chain, highlighting the need for energy self-reliance and controllability. China’s energy consumption mix is diverse, and the overall risk of dependence on foreign sources is controllable; the transition to clean energy has achieved notable results, but development and improvement are still needed in infrastructure and high-end manufacturing. Based on the demand to ensure energy security and advance the energy transition, we expect electricity pricing policies to be rolled out one after another to drive power prices to bottom out earlier and rebound, boosting investor enthusiasm in the power sector. The power sector is expected to capture opportunities for a dual repair of fundamentals and valuations.

▍ Event:

The Iran-Iraq conflict continues to escalate, with targets expanding to energy infrastructure. According to reports from outlets such as China News Service, since the outbreak of the Iran-Iraq conflict, the Strait of Hormuz has been sealed off, and Qatar’s oil and gas production bases have been attacked. The Middle East’s oil export volume has fallen by about 61%. Tightening Middle East oil and gas resource exports has pushed international oil and gas prices sharply higher; Brent crude oil prices have already broken above $100 per barrel, raising global market concerns about energy security and supply stability.

▍ China’s energy consumption mix is diverse, and the overall risk of dependence on foreign sources is controllable.

According to data from the National Bureau of Statistics, in 2025 China’s total energy consumption was about 6.17 billion tons of standard coal, of which coal/oil/natural gas/primary electricity and others accounted for 51.4%/18.2%/8.7%/21.7%, forming a diversified energy supply pattern based on the resource endowment of “abundant coal, scarce oil, and little gas.” According to data from the General Administration of Customs and the National Energy Administration, in 2025 China’s external dependency ratios for coal/crude oil/natural gas were 10%/76%/40%, respectively. Although the external dependency of oil and gas resources is relatively high, China’s energy security risk remains within a controllable range through electricity substitution and optimization of the energy mix.

▍ The clean energy transition has achieved notable results, but challenges remain in infrastructure development and advanced manufacturing.

Under the guidance of the “dual carbon” targets, China has continued to promote the construction of power sources such as green electricity and nuclear power, and the momentum of clean energy development has been strong. According to data from the China Electricity Council, in 2025 the share of non-fossil energy installed capacity nationwide increased to 60%, and the share of electricity generation increased to 35%, demonstrating a prominent transition in the energy mix. However, challenges still exist in advancing the energy transition: insufficient construction of ultra-high-voltage power transmission corridors and inadequate energy storage supporting facilities in the Northwest have made it difficult to absorb green electricity, weakening investor enthusiasm across the industry; advanced manufacturing areas such as fourth-generation nuclear power technology and controllable nuclear fusion still require sustained investment in research and development. Overall, although China’s energy transition has progressed rapidly, it still needs continuous capital investment and policy support to drive breakthroughs in construction and development in related areas.

▍ With the demand to ensure energy security and advance the energy transition, electricity prices are expected to benefit from policy support to achieve an earlier bottoming out.

At present, the power industry is under pressure from concentrated capacity additions and the advancement of electricity market reforms, and it is in a phase of relatively loose supply and demand. Market-based electricity prices have fallen significantly, and industry profitability is under substantial pressure. However, as a stabilizer in energy supply, electricity plays a key role in helping the country ensure energy security, and it is also an important enabler for achieving the “dual carbon” goals on schedule. In March 2026, Liaoning introduced a mechanism-based electricity price policy for nuclear power, providing provincial nuclear power plants with a reasonable rate of return, reflecting the government’s intention to provide policy support. We expect that, going forward, each province will continue to issue similar policy safeguard measures to push electricity prices to bottom out earlier than the industry’s supply-demand balance inflection point and rebound, thereby boosting investor enthusiasm for power investment and supporting the industry’s long-term, steady development.

▍ Risk factors:

Electricity demand falls short of expectations; market transaction electricity prices decline significantly; fuel costs rise more than expected; risks related to new energy curtailment intensify; advancement of electricity-sector reform falls short of expectations.

▍ Investment strategy.

The Iran-Iraq conflict has exposed the vulnerability of the energy supply chain. The strategic value of power as China’s “energy security ballast stone” is expected to be re-rated. Under the backdrop of a marginal improvement in policy stance and power price expectations bottoming out earlier, the power sector is expected to seize opportunities for a dual repair of fundamentals and valuations. We recommend nuclear power leading companies that benefit from the normalization of unit approval; hydropower leading companies with high-quality underlying assets and steady dividends; coal-power integrated enterprises with advantages in upstream resources that can effectively hedge fuel price volatility; and H-share green electricity and H-share thermal power companies with relatively low valuations and attractive dividend yields.

（Source: First Financial News）