Morgan Stanley cut its target price for Huadian Power International (01071) to HK$2.1 from HK$3 and maintained its "equal-weight" rating.
The research house expects Huadian to invest more in renewable energy, spurred by China's commitment to becoming carbon neutral by 2060. This will likely lead to a lower possibility of returning free cash flow to shareholders through dividends, as well as lower internal rates of return at new power plants.
Morgan sees the potential for a decline in utilization hours at its coal power plants, due to intensified competition from other renewable energies. Huadian trades at 0.3x 2021 P/B, at the low-end of the historical range of 0.3-1.8x, but Morgan believes it is fair, given its low ROE of 5.6% in 2021 as well as a somewhat gloomy outlook for fossil fuels under global decarbonization trend.