China Yangtze Power Co. Ltd (600900) recently issued an announcement that China Three Gorges Project Corporation, the company's controlling shareholder, is planning for a general listing of its main business and has consulted with relevant authorities. Trading in shares of the the company has been suspended for five days.

According to the State-owned Assets Supervision and Administration Commission of the State Council, the main business of the China Three Gorges Project Corporation includes hydropower engineering and construction, power generation and professional technical services. Thus, 18 power generation units of the Three Gorges Power Plant, six underground power stations, the Xi Luodu and the Xiang Jiaba power plants on the upper reaches of the Jinsha River compose its main businesses.

According to Xinhua News Agency, there was nothing out of the ordinary regarding the Three Gorges Power Project following the earthquake. Construction on remaining projects is being carried out according to schedule. As the cost of generating hydropower is lower than coal-based power generation and more environmentally friendly, there could be a larger price margin and further policy supports in the future.

Following the injection of power generation units of the Three Gorges project, China Yangtze Power currently has no other power generation assets to acquire from its parent company.

However, as underground power stations of the Three Gorges Project and the Xi Luodu and the Xiang Jiaba hydropower plants will be put into operation at the end of 2011, the company will have power generation assets to acquire in the future.

Although the high lending interest rate and increasing cost for the acquisition of power generation units could limit the EPS thickening effect of the asset acquisition, these power generation assets will strengthen China Yangtze Power in the long run. Analysts have given the company a 'Buy' rating and have maintained a positive profit expectation for it.

Source: China Securities Journal

Date: 21 May 2008

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