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

CITIC Securities believes that the ongoing conflict between Iran and the Middle East is continuing to disrupt the global energy supply chain, highlighting the necessity of achieving independent and controllable energy security. China’s energy consumption structure is diversified, and the overall risk of dependence on foreign sources is broadly controllable; the transition to clean energy has achieved remarkable results, but development and improvement are still needed in infrastructure and high-end manufacturing. Against the backdrop of the demands to safeguard energy security and promote the energy transition, we expect electricity pricing policies will be introduced one after another to drive electricity prices to bottom out earlier and rebound, boosting investor enthusiasm for the power sector. The power sector is likely to face an opportunity for a dual repair in both fundamentals and valuation.

Full text as follows

Public Utilities & Environmental Protection｜Energy Security Value Becomes Prominent, Industry Poised to Benefit from a Re-Rating

The ongoing conflict between Iran and the Middle East continues to disrupt the global energy supply chain, highlighting the necessity of achieving independent and controllable energy security. China’s energy consumption structure is diversified, and the overall risk of dependence on foreign sources is broadly controllable; the transition to clean energy has achieved remarkable results, but development and improvement are still needed in infrastructure and high-end manufacturing. Against the backdrop of the demands to safeguard energy security and promote the energy transition, we expect electricity pricing policies will be introduced one after another to drive electricity prices to bottom out earlier and rebound, boosting investor enthusiasm for the power sector. The power sector is likely to face an opportunity for a dual repair in both fundamentals and valuation.

▍ Event:

The conflict between Iran and the Middle East continues to escalate, with the target expanding to energy infrastructure. According to reports such as China News Service, since the outbreak of the Iran-Middle East conflict, the Strait of Hormuz has been blocked and Qatar’s oil and gas production facilities have been attacked. As a result, the Middle East’s oil export volume has fallen by about 61%. Tightening oil and gas resource exports from the Middle East has driven a rapid rise in international oil and gas prices. Brent crude oil prices have already broken through $100 per barrel, raising global concerns about energy security and supply stability.

▍ China’s energy consumption structure is diversified, and the overall risk of dependence on foreign sources is broadly controllable.

Based on data from the National Bureau of Statistics, in 2025 China’s total energy consumption was approximately 6.17 billion tons of standard coal. Of this, coal/oil/natural gas/thermal power and other electricity accounted for 51.4%/18.2%/8.7%/21.7%, forming a diversified energy supply pattern based on resource endowments of “abundant coal, relatively scarce oil, and limited gas.” According to data from the General Administration of Customs and the National Energy Administration, in 2025 China’s import dependency for coal/crude oil/natural gas was 10%/76%/40%, respectively. Although the dependency on foreign 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.

▍ Clean energy transition has achieved notable results, but there are still challenges in infrastructure development and high-end manufacturing.

Guided by the “dual carbon” targets, China has continued to promote the construction of power sources such as green power and nuclear power, and the momentum for clean energy development has been strong. According to data from the China Electricity Council (CEC), in 2025 the share of non-fossil energy installed capacity nationwide increased to 60%, and the share of electricity generation increased to 35%, highlighting strong results in the energy structure transition. However, challenges still exist during the process of promoting the energy transition: insufficient construction of ultra-high-voltage power transmission corridors for cross-regional delivery and inadequate energy storage supporting facilities in the northwest region have led to difficulties in absorbing green power, weakening investors’ enthusiasm for the industry; advanced manufacturing areas such as fourth-generation nuclear power technologies and controlled nuclear fusion still require continuous investment in R&D, among other needs. Overall, although China’s energy transition progress is advancing rapidly, it still needs continued capital investment and policy support to drive breakthroughs in construction within the related fields.

▍ Under the demand to safeguard energy security and promote the energy transition, electricity pricing is expected to benefit from policy support and achieve an earlier bottoming out.

At present, the power industry is in a phase of relatively loose supply and demand due to intense and clustered commissioning and the pressure of advancing electricity market reforms. Market-based electricity prices have fallen significantly, and industry profitability is under notable pressure. However, as a stabilizer of energy supply, electricity plays a key role in ensuring national energy security, and it is also an important driver to help achieve the “dual carbon” targets on schedule. In March 2026, Liaoning introduced a nuclear power mechanism electricity pricing policy, providing nuclear power stations within the province with a reasonable rate of return, reflecting the government’s intention to provide policy backstops. We expect that, going forward, provinces will continue to introduce similar policy safeguards, helping electricity prices bottom out earlier than the industry supply-demand balance turning 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 sharply; fuel costs rise more than expected; risks related to new energy curtailment/absorption intensify; progress in power sector reform falls short of expectations.

▍ Investment strategy.

The Iran-Middle East conflict exposes the vulnerability of the energy supply chain. As electricity is the strategic value of China’s energy security “stabilizing anchor,” it is expected to receive an adjustment upward in valuation. Against the backdrop of marginally improving policy stance and electricity price expectations bottoming out earlier, the power sector is expected to face opportunities for a dual repair in both fundamentals and valuation. We recommend nuclear power leaders that benefit from normalized unit approval; hydropower leaders with high-quality underlying assets and stable dividends; coal-power integrated companies with advantages in upstream resources that can effectively hedge fuel price fluctuations; and H-share green power and H-share thermal power companies with undervalued valuations and attractive dividend yields.

（Source: First Financial）