Analysts at Morgan Stanley have issued an updated research report on HUANENG POWER (ASX: 00902).

The firm has revised its revenue forecasts for the years 2026 and 2027 downward by 8% to 10%. This adjustment accounts for a more conservative outlook on power generation and an anticipated downward trend in on-grid electricity tariffs.

The analysis projects a 1% decline in the composite tariff for 2026. This expected decrease is attributed to falling annual contract prices, which are likely to offset strength in the spot market, coupled with ongoing reductions in renewable energy tariffs.

Consequently, Morgan Stanley has raised its target price for the company's H-shares from HK$5.5 to HK$6.1. This revision reflects rolling the valuation base forward to 2027, while maintaining an unchanged target price-to-earnings multiple of 8.5 times. The firm's rating on the stock remains "Market Perform".

The report notes a minor upward revision of 1.4% to the 2026 net profit forecast, due to lower-than-expected minority interests in 2025. However, the 2027 net profit forecast has been reduced by 15.5%.

Following these revisions, the firm anticipates the company's revenue will decline by 5% in 2026 and 2% in 2027. Net profit is forecast to fall by 12% and 7% for the respective years.

The report also suggests that the margin between fuel costs and power prices, known as the dark spread, is likely to narrow this year, potentially leading to weaker second-quarter results.

Despite these headwinds, based on an assumed dividend payout ratio of 53%, the firm still projects a dividend yield of approximately 5.4% for 2026.