Citi: China National Nuclear Power: New energy weighs on profit, so why did Citi upgrade the stock?

Why upgrade the rating despite lower profit forecasts?

Citi cut its net profit forecasts for 2026 and 2027 by 15.2% and 5.7%, respectively, to 7.646 billion yuan and 9.382 billion yuan, because of losses in the new-energy business. The forecasts are 4.1% and 1.0% below market consensus, respectively.
Despite the earnings forecast cuts, Citi expects higher electricity market prices in 2027 to support market sentiment and sees substantial room for growth in nuclear capacity. It upgraded the stock from sell to neutral. Using a lower weighted average cost of capital, the bank raised its discounted cash flow target price from 8 yuan to 10.5 yuan.
Citi still considers China National Nuclear Power less attractive than CGN Power: the former derives a smaller share of earnings from nuclear power and has a higher valuation.

In the first three quarters of 2026, total electricity supplied to the grid rose 1.1% year on year, but revenue fell 2.9% to 59.848 billion yuan. Market-based prices for nuclear and new-energy electricity declined, gross margin fell from 42.5% a year earlier to 36.0%, and net profit dropped 24.2% to 6.066 billion yuan.
The third quarter improved: total electricity supplied to the grid rose 7.0% year on year, while revenue and net profit each rose 3.8% to 21.451 billion yuan and 2.425 billion yuan, respectively. Citi said a quarter-on-quarter recovery in market-based prices for nuclear and new-energy electricity supported performance.
The new-energy business remains under pressure: its average on-grid tariff fell 10% year on year to 0.338 yuan per kilowatt-hour in the first three quarters; the curtailment rate rose 6 percentage points to 22.44%, weighing on the business’s earnings.

In the first three quarters of 2026, the company’s average nuclear on-grid tariff fell 3.8% year on year to 0.38 yuan per kilowatt-hour. Of its nuclear electricity, 71% was sold at market-based prices, with the average price down 6.8% year on year to 0.37 yuan per kilowatt-hour.
Nuclear power in Jiangsu has a relatively high degree of market-based pricing. Local market-based prices fell 8.7% year on year in the first three quarters, but improved quarter on quarter in the third quarter. Citi expects higher Jiangsu market prices to lift the company’s average nuclear on-grid tariff by 2% year on year in 2027.
Citi estimates that every 1% increase in the average market-based price would lift the company’s 2027 net profit by 275 million yuan, or about 2.9%, relative to the base case.

Citi expects the company’s nuclear capacity at the end of 2026 to rise 9.9% year on year to 27.477 million kilowatts. The company plans to commission 6 nuclear units in 2027, driving another 23.4% increase in year-end capacity to 33.917 million kilowatts. The units are scheduled to enter service across the first and second halves of 2027.
Growth in year-end capacity is not the same as growth in full-year generation: Citi expects nuclear electricity supplied to the grid to rise 12.6% year on year in 2027, while nuclear unit utilisation hours fall 2.8% and nuclear fuel cost per unit rises 6%.
Expansion brings substantial funding needs. Citi forecasts operating cash flow of 46.607 billion yuan and capital expenditure of 91.871 billion yuan in 2027, with free cash flow remaining negative; its model projects net debt will rise to 499.308 billion yuan that year.