China National Nuclear Power:Higher long-term capacity target likely but still too early for fundamental improvement

2030 nuclear capacity target to be 120-150GW, slightly higher than consensus

    China Securities Journal reported on 16 June that the NEA is soliciting opinions on the13th FYP for nuclear power and mentioned an official nuclear capacity target of 120-150GW for 2030. Previously, in the long-term nuclear power development planpublished in 2012, a target of 58 GW was set for 2020, with 30 GW more underconstruction. The 2030 target is slightly higher than the market's earlier expectation of110-130GW. As there were already media reports on the 2030 target in November2015, we believe the latest report may mean an official target will be released shortly.

    We see difficulty in meeting the target without restarting inland nuclear power

    Despite the recent relatively positive market reaction to the long-term capacity target,we see great difficulty in meeting it under the current conditions, as: 1) Inland nuclearpower projects have yet to be restarted: The 13th FYP for National Economic andSocial Development, announced earlier this year, stated nuclear power constructionprojects will still be located in coastal regions and inland nuclear power projects willremain suspended. We estimate potential installed capacity of coastal projects is justenough to meet the 2020 capacity target of 58GW. To achieve the 2030 target, inlandprojects must be restarted. 2) Actual operating performance and benefits of 3Gnuclear power technology remain uncertain: Inland nuclear power projects plan touse 3G nuclear power technology, since it offers better safety than 2G. However, actualannual utilisation hours cannot be determined since there are no 3G generating units inoperation anywhere in the world. Moreover, as the cost of a 3G generating unit isnearly twice that of a 2G unit, the current on-grid nuclear power tariff is clearly nothigh enough to make the project profitable, while hiking the tariff would be contrary toChina's power sector reform and tariff cut.

    Nuclear power industry fundamentals to remain under pressure in near term

    Due to the double impact of an electricity demand slowdown and better water inflowat hydropower plants, average utilisation hours at nuclear power generating unitsnationwide fell 2% YoY and the average operating rate at Fujian's nuclear powergenerating units is only 60%. In our note, Downside risk for utilisation hours, we statedutilisation hours at China's nuclear power projects face downside risks in 2016.

    Valuation: Maintain Neutral rating and Rmb7.90 PT (DCF-based, 5.5% WACC)

    We maintain our Neutral rating, as we believe it is still too early for a markedimprovement in nuclear power industry fundamentals.