1.2 trillion investment + new state-owned enterprise support! Super hydropower project ignites the market

On July 19, China's largest hydropower project in history was officially announced, with Premier Li Qiang of the State Council personally attending the ceremony to declare the commencement of the Yarlung Tsangpo River downstream hydropower project. This project, equivalent to "three Three Gorges" in scale, instantly ignited enthusiasm in the capital markets. Over the weekend, major securities firms rushed to release multiple reports, with the core conclusion pointing to an "epic investment opportunity."

As China's top energy project for the coming years, the state has specially established a new central enterprise—China Yajiang Group (No. 22 in the central enterprise directory), directly under the State-owned Assets Supervision and Administration Commission (SASAC). The scale of asset integration and policy support far exceeds market expectations. A project of this magnitude is extremely rare in China's history and will directly impact capital flows after the opening of the A-share and H-share markets on July 21.

First, let’s look at the basic information about this hydropower station.

Core Project Overview:

The Yarlung Tsangpo River downstream hydropower project is located in Nyingchi City, Tibet Autonomous Region. The project primarily adopts a development approach of "cutting bends and straightening the river" and "tunnel diversion," constructing five cascade power stations with a total investment of approximately 1.2 trillion yuan. The installed capacity is expected to be 60-70 million kilowatts, about three times that of the Three Gorges, with an annual power generation of around 300 billion kilowatt-hours. The project was approved in December 2024.

Asset Operation Plan:

All hydropower assets in the basin will be consolidated into the newly established central enterprise—China Yajiang Group. Subsequently, this central enterprise is likely to integrate some hydropower assets from other power-related central enterprises. Additionally, the electricity generated by the project will primarily be transmitted to other regions for consumption, while also meeting local demand in Tibet. Of course, given Tibet's limited local consumption capacity, the majority of the electricity will be transmitted elsewhere, with South China and East China being the main consumption destinations due to geographical factors.

Value of the Mega Project:

Based on the publicly disclosed parameters, this is the largest hydropower project in China's history in terms of investment and installed capacity, and of course, the largest in the world. Its annual power generation is sufficient to meet the electricity needs of 300 million people, making it a true mega project. The location of the hydropower station—the Yarlung Tsangpo River basin—is even more extraordinary. It is the river with the highest elevation drop in the world, with a total drop of 5,435 meters. In the Great Bend area where the station is being built, an astonishing 2,000-meter drop occurs within a 50-kilometer straight-line distance, making it extremely rich in hydropower resources.

Geopolitical Focus:

It is worth noting that the Yarlung Tsangpo River flows out of China's border at Pasighat in Medog County, entering India and Bangladesh before merging with the Ganges River and flowing into the Bay of Bengal. As a result, the development of hydropower resources in the upper reaches of the Yarlung Tsangpo River and the resulting geopolitical issues have long been a point of contention between China and India. It can be anticipated that, unlike all previous hydropower projects within China, the progress of this project will become a focal point of international attention.

After the announcement of this project, the suspense in the capital markets quickly shifted to: Which companies will benefit from this mega project?

First, the reaction in the A-share market is likely to be more diverse than in the H-share market, for a simple reason: the A-share market has a more comprehensive list of listed companies. From upstream industries like civil explosives, cement, and building materials to engineering equipment, power equipment, infrastructure construction, and ultra-high-voltage power transmission, this mega project can almost entirely be "digested internally" by A-share listed companies.

For the H-share market, the following stocks are worth focusing on.

First, power generation equipment companies, Harbin Electric and Dongfang Electric, with Harbin Electric being more prominent. Harbin Electric has developed the world's largest single-unit capacity Baihetan 1,000-megawatt unit, the world's highest-rated 724-meter pumped-storage unit, and China's only 500-megawatt high-head, large-capacity impact-type hydroelectric unit. Its capabilities in hydropower R&D, design, and manufacturing have reached world-class levels.

Although Dongfang Electric is geographically closer to the hydropower station site, for heavy equipment like this, distance is relatively less important among all factors to consider. Therefore, it is highly likely that Harbin Electric will take the lead, with Dongfang Electric playing a supporting role, and the two large state-owned enterprises will divide the main hydroelectric units for the five cascade power stations on the Yarlung Tsangpo River.

It is worth noting that power generation equipment is the first H-share "Yajiang Project" theme we expect to surge, for a simple reason—scarcity. As we just analyzed, the main hydropower participants in China are only Harbin Electric and Dongfang Electric. Compared to the relatively larger number of cement and construction companies, the certainty is higher, and capital will be more concentrated. Particularly for Harbin Electric, with a total market capitalization of only 13.6 billion HKD and a P/E ratio of around 7.6x, compared to Dongfang Electric's 50 billion HKD market cap and 15x P/E, there is greater room for valuation re-rating.

Additionally, China Energy Engineering holds over 50% of the market share in large hydropower projects and has won the bid for the Yajiang midstream security power supply project. It is expected to undertake downstream project electromechanical installation and other businesses in the future.

As a core participant in hydropower engineering construction, its accumulated technical expertise in large tunnel construction and overall power station layout aligns with the Yarlung Tsangpo downstream project's "cutting bends and straightening the river, tunnel diversion" development model. Its past performance records in mega projects like the Three Gorges and Xiluodu also add weight to its chances of securing Yajiang project orders. From a valuation perspective, China Energy Engineering's P/E ratio is currently around 6x, relatively low, and is expected to converge toward the industry average.

It should be noted that the performance of these stocks depends not only on the project's progress but also on market expectations for policy support and industry trends.

As a national strategic project, the Yarlung Tsangpo hydropower station may see follow-up policies such as special financing support and tax incentives. These policy benefits will collectively enhance the profit expectations of related companies in the industrial chain, which will be reflected in stock performance. For investors, tracking key milestones such as environmental assessment progress, unit bidding announcements, and transmission channel planning can help more accurately capture investment opportunities in these stocks.$CH ENERGY ENG(03996.HK) $DONGFANG ELEC(01072.HK) $HARBIN ELECTRIC(01133.HK)

Disclaimer: This article is for learning and communication purposes only and does not constitute investment advice.