J.P. Morgan: China Yangtze Power’s third-quarter generation falls, while costs and fair-value losses weigh on profit

Why did profit fall short despite better-than-forecast revenue?

China Yangtze Power reported third-quarter 2026 revenue of 25.1 billion yuan, down 13% year on year but about 2% above JPMorgan’s forecast of 24.7 billion yuan. Net profit for the same period was 11.6 billion yuan, down 23% year on year and about 10% below the bank’s forecast of 13 billion yuan.
The revenue beat did not offset the effects of costs and fair-value losses: JPMorgan noted that operating costs were higher than forecast and that financial assets and liabilities generated a fair-value loss of 593 million yuan.

Third-quarter generation was 92.3 billion kilowatt-hours, down about 15% year on year. Lower generation weakened operating leverage, and gross margin fell from 70.5% a year earlier to 66.3%, also below JPMorgan’s forecast of 70.5%.
Although revenue exceeded the bank’s forecast, operating costs were substantially higher than forecast, and the revenue beat ultimately was not enough to offset the pressure from costs on gross margin.

JPMorgan said finance costs continued to decline, partially offsetting operating pressure. Excluding non-recurring items, third-quarter recurring net profit was 12.1 billion yuan, down 20% year on year, a smaller decline than the 23% fall in reported net profit.
Recurring net profit was about 481 million yuan higher than reported net profit, reflecting the aggregate drag on quarterly profit from non-recurring items; fair-value losses were an important reason for the gap.

The bank expects market consensus forecasts for the company’s full-year 2026 earnings to be revised down slightly, and expects a mildly negative share-price reaction.
JPMorgan maintained its Overweight rating and June 2027 price target of 32.40 yuan. Its reasons include its view that the company’s business is relatively defensive among China’s independent power producers, as well as its low leverage, strong cash flow and dividends. The target price uses a discounted cash flow method and implies about 3.4 times forecast 2026 price-to-book value, above the historical average of 2.3 times; lower-than-expected utilization and hydropower tariffs are the downside risks cited by the bank.