State Grid Corp. of China

Overview Key strengths Key risks Dominant market position in power transmission and distribution (T&D) in China. Pressure on profitability from potentially lower T&D tariff, considering the government?s goal to reduce energy cost for end-users. Improving regulatory predictability and transparency for setting of T&D tariff. High debt-funded capital expenditure (capex) for power T&D infrastructure upgrade. Strong government relationship given pivotal role in power supply and energy transition in China. Potential large-scale acquisition of power T&D related asset overseas could weigh on leverage. State Grid Corp. of China's (SGCC) financial performance is likely to moderately recover and return to a stable trend as the negative impact of the pandemic subsides. Although economic activity was temporarily disrupted in the first half of 2022

...Power sales should gradually recover after the pandemic. State Grid Corp. of China's (SGCC) financial performance is likely to moderately recover and return to a stable trend as the negative impact of the pandemic subsides. Although economic activity was temporarily disrupted in the first half of 2022 as new cases were found in different parts of China, growth in overall power consumption should recover in the second half and 2023. We also believe the central government will not impose one-off policies for grid operators--like it did in 2018-2020--that would materially hit the profitability of these companies. We estimate SGCC's power sales volume will increase by 5%-6% in 2022-2024, compared with a 12.9% growth in 2021 and a 2.9% rise in 2020....

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