Huatai Securities: Nuclear Power Expected to Restart "Performance Growth + Valuation Increase" Double Boost

A Huatai Securities research report states that, under the backdrop of the energy transition and energy security, the importance of nuclear power is increasingly evident. China’s globally leading nuclear power industrial chain lays a long-term growth foundation for China National Nuclear Corporation and CGN. Starting in 2026, a potential rebound in coal prices, continued increases in carbon prices, and the introduction of a policy to backstop the trial implementation of benchmark mechanism-based electricity pricing are highly likely to mark a milestone conclusion to the nuclear power price-cut concerns that the capital market has had over the past three years. With the “15th Five-Year Plan (2026-2030)” nuclear power program entering a period of dense capacity additions, we expect nuclear power leading stocks to see three benefits in sequence: earnings recovery, accelerated growth, and valuation uplift.

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Huatai | Utilities: A double “earnings growth + valuation increase” boost from nuclear power restart

Under the backdrop of the energy transition and energy security, the importance of nuclear power is increasingly evident. China’s globally leading nuclear power industrial chain lays a long-term growth foundation for China National Nuclear Corporation and CGN. Starting in 2026, a potential rebound in coal prices, continued increases in carbon prices, and the introduction of a policy to backstop the trial implementation of benchmark mechanism-based electricity pricing are highly likely to mark a milestone conclusion to the nuclear power price-cut concerns that the capital market has had over the past three years. With the “15th Five-Year Plan (2026-2030)” nuclear power program entering a period of dense capacity additions, we expect nuclear power leading stocks will see three benefits in sequence: earnings recovery, accelerated growth, and valuation uplift.

Key takeaways

Nuclear power development accelerates: the optimal solution to the “impossible triangle” of energy that is independently controllable

Under the “dual carbon” targets, nuclear power is likely the most effective solution to the energy “impossible triangle.” Domestic-made “Hualong One” and “Guohe One” have formed a complete industrial chain. We estimate that each third-generation nuclear power unit can reduce national coal and LNG import volumes by 0.4%-1.1%, and the external dependency ratio of coastal provinces declines by more than 10%. Nuclear power costs are stabilized at 0.2 yuan per kWh. Compared with coastal thermal power and wind/solar, nuclear power’s cost-effectiveness is especially prominent. Under the “15th Five-Year Plan (2026-2030),” carbon pricing may continue to rise, and nuclear power vs. thermal power’s advantage may widen further.

Fundamentals: the “15th Five-Year Plan (2026-2030)” is expected to deliver a double boost in quantity and price

In 2022, nuclear power approvals in China entered a new normal, indicating that the commissioning phase starting in 2026 will move into a period of high-speed growth. We estimate that, for the “15th Five-Year Plan (2026-2030),” the equity-installed capacity growth rates of China National Nuclear Corporation and CGN will be 11% and 13%, respectively. Since 2023, declining coal prices have driven down electricity prices, leading to profit declines for both companies. In 2026, we judge that rising coal and carbon prices could catalyze a turning point in electricity prices. Meanwhile, the mechanism-based electricity pricing trial in Liaoning/Guangxi has been rolled out one after another, showing the government’s stance on backing nuclear power profitability. We estimate that if the trial is promoted nationwide in 2026, the companies’ earnings would have 7%-43% of room for repair. If the coal price mid-point shifts upward by 150 yuan per ton, this could correspond to a 5-6 fen per kWh increase in electricity prices, which may bring an upside earnings elasticity of 30%-40%.

Valuation: apparent ROE is suppressed; mechanism-based electricity pricing and faster commissioning may bring valuation improvement

Even in 2023-25, when electricity prices continue to decline, ROE at the nuclear power plant level has almost never fallen below 15%, which is not worse than the three major hydropower leading companies. A construction period of more than five years means that, at the level of listed nuclear power companies, there is neither growth that reflects incremental profits nor a true increase in profitability. Overall ROE is also suppressed by the upfront costs and expenses of new projects, failing to reflect nuclear power plants’ actual high profitability. We believe that the implementation of mechanism-based electricity pricing may significantly strengthen the capital market’s confidence in the stability of nuclear power earnings. The faster commissioning starting in 2026 will further ease the dilution pressure on projects under construction, thereby bringing a double uplift in both earnings and valuation.

Differences from market views

In 2023-25, declining nuclear power electricity prices increase the earnings risks of existing as well as new projects, making it difficult for the market to value them in the manner usually applied to growth stocks. Compared with the capital market, we are more confident about nuclear power electricity price increases: rising coal prices and carbon prices will directly drive a rebound in coastal electricity prices, and policy backstop signals have already been implemented in advance. Considering nuclear power as a long-duration asset, we estimate that, at a 7% WACC, the DCF values of projects held by China National Nuclear Corporation and CGN are 218.5 and 266.1 billion yuan, respectively. Considering that each third-generation unit can further add 10-12 billion yuan, China’s routine approvals of 8-10 units per year will also bring a steady stream of incremental capacity to both companies. If the trials in Liaoning and Guangxi are promoted nationwide, market confidence in the stability of nuclear power profitability is expected to improve substantially, implying that the WACC requirement used in DCF valuation may decline further.

Risk warning: the subsequent progress of the nuclear power trials in Liaoning and Guangxi; coal price fluctuations (changes in the duration of the Strait of Hormuz blockade, changes in Indonesia’s coal export quota, domestic supply-side reform, etc.); coastal power supply and demand.

（Source of the article: China First Finance）