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Across The Border | Ultra-high voltage equipment makers set to benefit from China’s clean air push

A unique segment of the utility business offers good value, analysts say

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People wear protective masks near the Bund during a polluted day in Shanghai, China, January 19. Photo: Reuters

As China’s nine month-long stock market rout drags on, certain counter-cyclical growth stocks have stood out from the crowd, with analysts recommending them on the basis of cheap valuations relative to their growth prospects.

Among the standouts are power grid equipment makers, whose shares have been under pressure in recent months. Many have regained investment attractiveness, especially those making high-end gear used to build so-called “ultra-high voltage (UHV)” power lines, which are expected to be in demand through the end of the decade, analysts said.

UHV lines would play a big role in helping tackle the nation’s air pollution problem, according to Liu Zhenya, the chairman of state-owned State Grid that has monopoly distribution in all but five southern regions in China, who said they would send excess renewable energy from northern and western regions to consumption centres in central and coastal regions so that some old coal-fired plants in the latter can be retired.

“UHV power lines are at a peak approval and construction tendering stage, with a number of lines expected to be approved in this year’s second-half,” said Sinolink Securities analyst Zhang Shuai in a report. “State Grid Corporation is also pushing for global grid inter-connection with UHV lines … this will spur development of UHV and smart grid technology.”

State Grid has an eight-year plan to spend some 600 billion yuan (HK$717.43 billion) to build 37 UHV lines by 2020. By the end of last year, only eight were in operation.

After delays related to technical and safety issues , approvals for new lines were accelerated in 2014 amid growing air pollution problems in major cities, so that a total of 16 lines are expected to be under construction this year and next year, according to a Daiwa Capital Markets report.

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