China's wind, nuke power sectors predicted to grow robust in 2015

Wind power is likely to be a stellar performer.

It has been noted that the wind and nuclear power sectors in China are likely to grow strongly in 2015.

According to a research note from Barclays, as this is the last year of the 12th five year plan, meeting targets is one obvious motivation.

Higher wind power tariffs (before the cut comes into effect from 2016) have also given an additional impetus for accelerated expansion in wind power, in Barclays' view.

Wind power looks set to exceed its 2014 addition of 20GW and could become the second largest contributor of power capacity growth in China despite its low base.

Huaneng Renewables appears to be better positioned on both an absolute basis and relative to peers, with the strongest capacity growth in 2015.

Nuclear power is entering into a stronger growth phase beginning in 2015. Barclays expects CGN Power (OW) this year to add new capacity equivalent to the total 2014 capacity additions in China.

Here's more from Barclays:

CGN Power (OW, PT: HK$4.0) – stronger for longer growth profile: The company is scheduled to commission 4.4GW of nuclear power capacity in 2015, for which we have assumed a delay of 6-12 months. Beyond 2015, successful execution of CGN's growth pipeline should drive double digit earnings growth until 2020.

The most recent approval of the Hongyanhe project extends its growth pipeline beyond 2020, while additional approvals could be a catalyst for a further strengthening of the growth pipeline.

Huaneng Renewables (OW, PT: HK$3.7) – on a high growth journey: Having delivered 1.5GW growth in 2014, Huaneng Renewables has guided for capacity additions of 2GW in 2015. This target is similar to its largest peer Longyuan which is guiding for 1.8-2.2GW growth on a higher base.

Importantly, 25% y/y growth in 2015 following 22% growth in 2014 sets the stage for multi-year earnings growth for the company. The valuation discount of 20% to the sector average in that context is not pricing in growth potential, in our view.

Longyuan Power (EW, PT: HK$10.0) – IPP exposure could be a drag on earnings: Despite its higher base, Longyuan's capacity expansion is similar to Huaneng Renewables, while its IPP exposure could be an additional drag on earnings growth.

Longyuan has 12% of its total capacity in IPPs, which exposes it to a risk of potential cuts in on-grid tariffs, while the outlook for utilisation hours is unlikely to improve in 2015. The benefits of lower gearing and better free cash flow are unlikely to flow to investors with a current payout of 20%. A potential asset injection from the parent company remains an upside risk.

Datang Renewable (UW, PT: HK$1.0) – missing the growth train? 2014 was the third consecutive year of slowing capacity additions for Datang Renewables, compared to its faster growing peers.

We expect Datang Renewable to improve capacity additions in 2015, however adverse geographical exposure and high gearing are two key constraints for the company, and we do not see these going away soon. Valuations on the other hand are pricing in growth ahead of its peers at a time when the company has been loss making in the last 12 months.