The current year has seen a massive wave of regulatory pressure by the Chinese government on key strategic sectors of its economy. Beijing has tightened regulatory scrutiny on its budding private refiners sector before ramping up pressure on tech titans such as Alibaba Inc. (NYSE:BABA) and Tencent Holdings (OTCPK:TCEHY).
The wave of crackdowns has, in a matter of months, knocked tens of billions of dollars from China's pivotal tech sector but proven to be a huge bonanza for China's clean energy sector.
Shares in Chinese clean energy companies have been rallying hard as investors rotate into clean energy, betting that Beijing will continue supporting the fast-growing sector as it gives the cold shoulder to Big Tech.
And now China's clean energy sector has received yet another shot in the arm after President Xi Jinping said Beijing would stop building coal-fired power plants overseas as part of efforts to cut carbon emissions. Back in September, Xi Jinping pledged that China will aim to hit peak emissions before 2030 and hit carbon neutrality by 2060.
And suddenly, China's clean energy sector is one of the few bright spots in a sea of mediocrity, with the CSI New Energy Index having soared 38.6% in the year-to-date compared to -36.9% return by the KraneShares CSI China Internet ETF (NYSEARCA:KWEB).
From cheap state-owned legacy oil and gas companies to energy plays with sizable renewable operations and fat dividends, here are 5 Chinese energy stocks worth a second look.
#1. China Petroleum & Chemical Corp. (Sinopec)
Market Cap: $82.1B
YTD Returns: 11.9%
China Petroleum and Chemical Corporation (NYSE:SNP), also known as Sinopec, is one of China's three state-owned oil companies and the largest oil and gas company in the Asia Pacific and the world by revenue after bringing in revenue of $407bn at the end of the 2019-20 fiscal year. It's also the second-largest company listed on U.S. exchanges in terms of revenue, behind only Walmart (NYSE:WMT).
Sinopec's operations include oil and gas exploration, refining, and marketing, as well as the production and sales of petrochemicals. The company's products include gasoline, diesel, kerosene, jet fuel, synthetic rubbers and resins, and chemical fertilizers. Sinopec says China is on target to become the world's biggest oil refiner by 2025 with a refining capacity of 20M bbl/day, according to Sinopec's Economics & Development Research Institute.
Sinopec's FY 2020 profit fell 42% Y/Y to 5.1B, the lowest since 2015 due to the global pandemic and extensive lockdowns. However, things are looking much better this year, with the oil and gas giant managing to swing to a 39.15B yuan ($6.05B) net profit for the first six months of 2021 while revenues climbed 22.1% Y/Y to 1.26T yuan.
The best part: Sinopec shares appear cheap, trading at only 5.9 times its expected earnings this year. Meanwhile, its current dividend yield (TTM) of 9.0% is among the highest in the industry.
#2. PetroChina Company Limited
Market Cap: $163.2B
YTD Returns: 58.7%
PetroChina Co. (NYSE:PTR) is the world's second-largest oil and gas company, currently holding assets in 30 countries across the globe. PetroChina - the exchange-listed branch of the Chinese state-owned China National Petroleum Corporation - specializes in oil and gas operations, oilfield services, petroleum engineering and construction, equipment manufacturing, financial services, and new energy development. Related: Oilmen Are The Newest Clean Energy Entrepreneurs
PetroChina has unveiled plans to spend 239B yuan ($37B) in annual capital spending - the highest for any gas and oil company globally - in an effort to increase domestic production over the next five years and also to improve China's energy security.
And just like its peer, PTR shares look like a steal trading at 6.5 times 2021 earnings with dividend yield (TTM) clocking in at 9.5%.
#3. China Longyuan Power Group Corporation Limited
Market Cap: $17.3B
YTD Returns: 104.9%
China Longyuan Power Group Corporation Limited (OTCPK:CLPXF), a subsidiary of state-owned China Energy, generates and sells wind and coal power in the People's Republic of China.
The company operates through two key segments: Wind Power and Coal Power. The company develops and operates wind and coal power plants, and also operates other clean power projects, such as thermal, solar, tidal, biomass, and geothermal solar power.
Shares of the wind power operator have surged nearly 10% since Xi Jinping's declaration.
#4. Huaneng Power International, Inc.
Market Cap: $14.8B
YTD Returns: 49.8%
Beijing-based Huaneng Power International, Inc. (NYSE:HNP), together with its subsidiaries, generates and sells electricity and thermal heating services to regional or provincial grid companies in the People's Republic of China and international markets. The company generates power from gas turbines, hydro, wind, photovoltaic, biomass, coal, solar, and oil resources. Additionally, the company sells raw and processed coal.
As of April 2021, the company had a controlled generating capacity of 113,805 megawatts and an equity-based installed capacity of 99,570 megawatts.
HNP shares, whose low-carbon energy sources accounted for 21% of its installed capacity as of June, have also been soaring after the latest developments. HNP has a 5.1% (Fwd) yield.
#5. Huadian Power International Corporation
Market Cap: $7.0B
YTD Returns: 47.2%
Huadian Power International Corporation (OTCPK:HPIFF), together with its subsidiaries, engages in the generation and sale of electricity and heat to power grid companies in the People's Republic of China. The company is involved in the construction and operation of power plants, including coal- or gas-fired generating units and various renewable energy projects. It also engages in the production and sale of coal.
As of December 2020, Huadian Power had 67 controlled power plants with a total installed capacity of 58,448 MW, including a total of 43,160 MW through coal-fired generating units and 7,340 MW through gas-fired generating units; and 7,948 MW through renewable energy generating units, such as hydro, wind, and solar power.
HPIFF shares have soared nearly 20% in just two trading sessions since Xi Jinping's announcement. The shares also sport a juicy 10.1% (Fwd) yield.
By Alex Kimani for Oilprice.com
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