On Wednesday, UBS analyst Ken Liu upgraded China Longyuan Power Group Corp (HKG:0916) (OTC: CLPXF), a leading renewable energy company, from Neutral to Buy. Accompanying this upgrade, the firm also increased its price target for the company's shares to HK$9.90, up from the previous HK$8.50.
This decision comes as UBS aligns its forecast with the company's performance and market potential, acknowledging that while year-to-date results have been weaker than expected, Longyuan Power's earnings for 2025-26 are anticipated to be 11% higher than the consensus. The upgrade reflects confidence in the company's future financial health and growth prospects.
Liu cites two significant catalysts that could enhance Longyuan's investment appeal. Firstly, the potential policy reform on renewable tariffs is expected to drive sustainable project Internal Rate of Return (IRR). Secondly, the acceleration of subsidy repayments is anticipated as the renewable subsidy fund overseen by the Ministry of Finance is projected to see a surplus starting from late 2024.
UBS's assessment also points to Longyuan's current valuations, which are near historical lows, at 0.6 times price-to-book value (P/BV) and 6 times price-to-earnings (PE). These valuations are seen as undervalued, especially considering the firm's long-term Return on Equity (ROE) estimate of 9%.
The analyst's comments underscore the firm's position on Longyuan Power as a top pick within the utilities and renewables sector, reflecting a positive outlook for the company's financial performance and market valuation in the coming years. The upgrade and new price target suggest that UBS sees substantial upside potential for the company's shares.
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