A man works on the assembly of a wind turbine in Gansu province. JP Morgan are bullish about the prospects of the utilities and infrastructure sectors on the mainland as China's 12th Five-Year Plan is expected to attach greater importance to environmental protection. Doug Kanter / Bloomberg

Alternative energies to benefit from rising eco-awareness

JP Morgan analysts are bullish about the prospects of utilities and infrastructure sectors on the mainland as the nation's 12th Five-Year Plan is expected to bring about new business opportunities.

Clean and renewable energy suppliers will benefit as the Central Government attaches ever greater importance to environmental protection, the use of alternative energies and emissions reduction, Boris Kan, regional head of utilities and power equipment at JP Morgan, said Thursday.

"We remain positive towards the development of nuclear power, wind power and city pipe-gas sectors," Kan said.

The 12th Five-Year Plan - China's policy blueprint for the next five years due to be announced this month - will put more emphasis on the development of renewable and clean energy, among other things, many analysts believe.

Demand for wind power is strong, for example. However, supply is yet to catch up with demand due to inadequate power grids, said Kan. But support from the government will help step up development of the wind power industry, Kan added.

Likewise, the nuclear power business will also be a growth story albeit at a slower pace compared with wind power. Nuclear power plants take time to set up, so the whole process is more labor- and time-intensive.

Meanwhile, city pipe gas suppliers are set to embrace more business opportunities as a number of city gas pipelines become operational.

Long-term investors should also bet on the infrastructure sector for steady returns, said Karen Li, JP Morgan's regional head of infrastructure, Asia Pacific equity research.

Roads and airport businesses, with their good record of steady returns and dividend yields, should be the top options for investors, she said.

"We hold an overweight rating on the road and airport sectors, which remain attractive with their steady growth," said Li.

As for the railway sector, Li said that she expects government investment in railway construction to remain steady. Annual capital expenditure will remain between 700 and 750 billion yuan until 2015. This is counter to the belief of most industry watchers, who believe that annual expenditure will drop to 500-600 billion yuan from 2013 onwards as new railway lines become operational in 2011 and 2012, Li added.

However, Li forecast a bleak outlook for the ports sector.

"The kind of high growth the sector saw between 2002 and 2008 has definitely ended," she said. Although container throughput is currently growing at 20 percent year-on-year, that isn't encouraging when the low comparative base and inventory adjustment in the past two quarters are taken into consideration, Li said.

According to Li's estimate, container throughput growth will slide to high single-digit rates by the beginning of next year.

China Daily

(HK Edition 10/15/2010 page3)