The Eve of the Clean Energy Boom: How to Select Outstanding Enterprises

The global clean energy sector is about to enter a new round of dividend period. According to the "2025 Global LNG Report" released by the International Gas Union (hereinafter referred to as the "Report"), with the release of an additional 58 million tons/year of liquefaction capacity by 2025, the LNG trade pattern may undergo a new round of adjustments.

In response, the authoritative media "China Energy News" published an article stating that "the world is about to witness a new peak in LNG expansion", and CICC has also released a report titled "Energy Security Demand May Extend the LNG Construction Boom", expressing great enthusiasm for the future of the industry.

What attitude should investors adopt to seize this round of investment opportunities? The core viewpoint of this article is:

First, the LNG industry is on the brink of the next cycle; however, in the short term, related companies will have to endure price fluctuations and other disturbing factors, which will severely test the management's operational patience.

Second, in the long term, outstanding clean energy companies must possess characteristics such as foresight (pre-emptive capital expenditure) and diversified operations (smoothing operational fluctuations), which is an important analytical framework for identifying excellent companies in the industry.

Thirdly, the revaluation of the capital market should be predicated on an increase in the price-to-earnings ratio.

Clean energy is set to explode in 2026.

Currently, the industry is experiencing disturbances for investors. Since the beginning of this year, global LNG prices have remained relatively subdued, leading to the perception in the market that 'overall industry demand is insufficient,' but this is not the reality.

According to the content of the report, it is believed that the growth of the global LNG market is primarily based on two key factors: first, LNG prices at the beginning of the year were at relatively low levels, stimulating the purchasing willingness of price-sensitive buyers; second, extreme high-temperature weather has led to a surge in demand for gas used in power generation.

In the face of major factors such as geopolitical issues and carbon neutrality targets, low prices have not reflected the fatigue of overall demand; on the contrary, low prices may accelerate overall industry demand and boost industry sentiment.

As of the end of 2024, the total capacity of liquefaction projects that are under construction or approved has reached 210.3 million tons per year, with planned capacity reaching as high as 1.1219 billion tons per year awaiting final investment decisions. It is noteworthy that after experiencing seven consecutive years of single-digit growth, the LNG industry will enter a capacity release cycle starting in 2026.

Under the influence of high overall demand and capacity expansion, the global clean energy sector stands on the brink of an industry explosion, presenting a significant opportunity for investors.

Characteristics of excellent enterprises: foresight and diversification.

The industry is thriving; how should investors select outstanding companies?

Against this backdrop, LNG-related companies have reaped considerable rewards, notably CIMC Enric (03899.HK). $CIMC ENRIC (03899.HK)$In the first half of 2025, clean energy revenue grew by 22.2% year-on-year, and the delivery schedule for its current offshore clean energy products (LNG carriers) extends to 2028. No wonder mainstream brokerages have recently raised the company's target price or profit expectations; UBS Group believes that new orders are improving on a quarterly basis, with new orders in the chemical environment and liquid food sectors growing by 43% and 62% respectively on a quarterly basis. They have also raised their earnings forecast for CIMC Enric over the next three years, with a compound annual growth rate adjusted to 10.99% and an increased target price to HKD 9.19. CICC forecasts that its three-year compound growth rate through 2026 will still reach 10.52%, which is why it maintains the stock's outperform rating in the sector. Meanwhile, JPMorgan has given a more aggressive estimate of a compound annual growth rate of up to 18.4% for the next three years.

Kunlun Energy (00135.HK). $KUNLUN ENERGY (00135.HK)$In the first half of 2025, LNG processing and storage also achieved steady growth, as did Jiufeng Energy (605090.SH). $Jiangxi Jovo Energy (605090.SH)$During the same period, LNG production exceeded 330,000 tons, achieving 106% of the planned target.

Although representative companies have achieved remarkable operational results, investors still need to establish a more robust analytical framework to enhance investment success, particularly in a context where scale is determined but prices are under pressure, favoring companies capable of absorbing costs and transferring risks.

1) Although the release of industry capacity is expected to occur in 2026, capacity preparation must be backtracked 2-3 years, requiring relevant companies to have a clear expansion cycle after 2022.

In the above chart, CIMC Enric notably increased its capital expansion efforts in 2022, coinciding with the global industrial cycle's outbreak, thereby enhancing the certainty of performance returns.

In recent years, global LNG prices have experienced significant fluctuations. On one hand, this has resulted in instability in the performance of related enterprises; on the other hand, it has shaken industry expectations, leading some companies to reduce capital expenditures after 2022.

2) There is a need for diversified operations to hedge against the volatility of LNG prices;

As the wave of capacity expansion arrives in 2026, the global LNG market will enter a critical period of price restructuring and market share redistribution. The report indicates that in the future, the narrowing of inter-regional price differentials will intensify the competition for resources.

The arbitrage opportunities for the U.S. in Asia are susceptible to geopolitical pressures. Under the interplay of project construction cycles and geopolitical risks, a vicious cycle of 'supply delays—price spikes—demand contraction' may emerge, creating long-term pressure mechanisms on the global LNG market. Therefore, industry participants need to build more resilient supply chain systems to cope with systemic risks.

Although the outlook is bright, the process is relatively tumultuous, which requires enterprises to have sufficient risk hedging capabilities.

In the first half of this year, Jiu Feng Energy expanded its market in chemical feed gases by acquiring 100% equity of Guangzhou Huakai Petroleum and Gas, achieving sales of over 340,000 tons, successfully extending from the traditional civilian fuel sector to the higher value-added chemical sector, thereby opening new growth opportunities.

CIMC Enric's newly signed orders in 2024 increased by 3.2% year-on-year to RMB 27.49 billion, setting a historical record, with newly signed orders in clean energy, chemical environment, and liquid food reaching RMB 21.79 billion, RMB 2.99 billion, and RMB 2.7 billion respectively. By the first half of this year, CIMC Enric's newly signed orders amounted to RMB 10.736 billion, an increase of 1.35 times from the first quarter's cumulative new signed orders of RMB 4.566 billion, with newly signed orders in clean energy, chemical environment, and liquid food rising to RMB 8.965 billion, RMB 1.079 billion, and RMB 0.692 billion respectively; in terms of orders on hand, it increased from RMB 28.309 billion at the end of March to RMB 29.181 billion at the end of June, with clean energy, chemical environment, and liquid food orders on hand reaching RMB 25.204 billion, RMB 0.84 billion, and RMB 3.137 billion, reflecting a solid and abundant order backlog that lays a foundation for future growth.

Diversified operations can not only enhance a company's risk resistance and stabilize financial report expectations, but also potentially yield growth dividends.

Taking hydrogen energy as an example, the recent "Implementation Plan for the Renewable Energy Development and Utilization Regulations in Beijing (Draft for Comments)" was publicly solicited for opinions. It proposes to promote the construction of hydrogen energy infrastructure and its application in multiple fields. The plan aims to establish a hydrogen energy infrastructure network covering the entire city and radiating to the Beijing-Tianjin-Hebei region. In addition, cities like Chongqing, Wuhan, and Fujian have also introduced relevant policies as strategic choices to seize the opportunities in the hydrogen energy industry.

With government financial support, the potential of hydrogen energy will be greatly unleashed, with estimates indicating that by 2050, China's hydrogen energy demand will reach between 100 million and 130 million tons.

Related enterprises are also actively betting on this sector, hoping to achieve gains in the future. CIMC Enric is advancing high-pressure/low-temperature hydrogen storage technology in the storage and transportation segment and is jointly developing a coke oven gas hydrogen production and LNG co-production project with Ansteel. Projects with Lingsteel and Shougang are expected to be operational in mid-2025 and 2026.

With a highly certain and diversified business strategy, companies can hedge against the impact of a single business on operations, thereby increasing their confidence in facing the future.

Under the aforementioned analytical framework, the market will inevitably need to reassess relevant companies. Currently, the valuation capability within the industry is generally low, with CIMC Enric (03899.HK) having a price-to-earnings ratio of only around 12 times, and Kunlun Energy (00135.HK) also hovering around 10 times. The restructuring of valuations should be premised on increasing the price-to-earnings ratio, and investors should not miss this opportunity.

Author: Tie Xin

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