Yesterday I shared a look at one stock Paul Tracy is teasing us with as a stock with great catalysts that should boost the stock price — today, let’s take a look at the second one he focused on in that ad.

Today, he’s talking about a Chinese Power Generator which, like the shipper we looked at yesterday, has a “five star” catalyst rating in his proprietary system.

I think I’m going to have to start saying that I have a “system”, too — it makes one seem so much more important, don’t you think? So far, my system has been to choose stocks that perform badly in a bear market, but I think I’m going to need a catchier name than that. Maybe I’ll call it the anti-contrarian system … I’ll keep you posted.

But anyway, Tracy has a Chinese power stock for us. Why is it so fabulous, you ask?

Here, in their words, is the gist:

“This major power producer runs the most efficient power plants in China, using far less coal to produce the same amount of power. This is a key profit catalyst in an era of rising coal prices.

“What’s more, its biggest shareholder is the country’s largest builder of utility plants. This relationship gives our pick a right of first refusal to buy all new power plants, a huge competitive advantage that is difficult to replicate.

“If you like a bargain, you’ll love the fact that you can buy shares for less than half of what you would have had to pay less than a year ago. The stock has dropped along with the sell-off that has battered the Chinese market since last November. But this solid and profitable utility is nothing like the speculative froth that made up so much of the Chinese stock market bubble. It gives you a conservative play on Chinese growth at an attractive price while paying you a solid 9.1% dividend.”

Sounds pretty good, no? Of course, if it didn’t sound good it wouldn’t be much of an ad, but still.

Paul believes that there are some solid catalysts for this stock, too, though to my ear most of them sound to some degree like long term trends that certainly haven’t helped the shares so far — I tend to picture catalysts as relatively near-term events, but they seem to use a broader definition of the term.

Here are the catalysts Tracy sees for this company:

Chinese electricity use is growing at double digit rates as the middle class grows.

They’re acquiring new plants and adding capacity.

Good connections: “the firm’s chairman is the son of China’s former prime minister. This counts for a lot in a country dominated by a communist government that still exercises huge control over business.” Can’t argue with that, key government connections are critically important for almost every company in China.

It’s plants are the most efficient, using less coal in an era of higher coal prices.

And the one that really sounds like I would call it a potential catalyst:

“A river of pent-up profits to be released soon. Power is heavily regulated in China, and the government has temporarily frozen rates. This is an enormous future catalyst because it will trigger a huge jump in profits. This one could get back to its old high in a hurry once rates are unlocked, which would mean a +114% gain from here.”

So … perhaps a bit enticing? Shall we throw this lot into the Thinkolator? Well, we’ve come this far.

Just a moment, please.

Ah, yes — this is Huaneng Power (IPO’d with shares on the NYSE at HNP about 15 years ago, now also traded in Hong Kong and Shanghai)

Huaneng Power has crossed these pages before — it was a pick of the Motley Fool at one point as a play on their efforts to build “pebble bed” nuclear reactors, though this pick by Tracy appears to be focused more on their conventional coal-fired power generation, which is a much larger part of the business (so far, at least).

Li Xiaopeng, who is the government connection, is indeed the son of Li Peng, former Prime Minister — and according to Forbes, he is still the Chairman of the Board at HNP. He has also been active in management of the parent company, Huaneng International Power Development Corporation.

So, do you want to own a Chinese electric utility? If you’re familiar with regulated utilities in the U.S., this is like the ultra most regulated utility you’ve ever seen — the government strictly controls electricity rates, and there is not necessarily a strong focus on profitability for HNP as much as there is a focus on affordable electricity for consumers and factories. On the other hand, the government indirectly owns a lot of HNP, so they don’t want to bleed them too much, so there is a balancing act.

It’s a bit of an exaggeration to say that the shares yield 9% at this point — though it could have been accurate at the lows in November. Shares are currently just under $30 after having a nice run in the last month or so, and the annual dividend last year was about $1.70 (they pay a dividend only once per year, in the Spring, and the amount has varied pretty widely in the past).

The big driver of enthusiasm for this stock recently, and for the other power producers in China (none of the other major ones are listed in the US) has been falling coal prices — China is so coal dependent, and electricity rates so regulated, that a drop in coal prices can be the savior for power generators that cannot hike rates. Then again, if electricity rates are allowed to climb in the year ahead that would certainly help, too. I have no idea whether or not the Chinese government will allow power prices to rise — with demand dropping significantly as factories scale back, and with a national focus on spurring domestic consumption, rate hikes of significance seem counterintuitive to me, but I’m no expert.

There was a very good article about this issue, and about Huaneng Power and their competitors, in Barron’s on Monday — definitely worth a read to help you understand the current circumstances before you decide whether or not you’re interested in these shares. The stock has been touted by the Motley Fool in the past year or two as a Rule Breakers pick, and thanks to the lower prices it more recently was added to their Income Investor portfolio, and it was also a Zack’s pick about a year ago.

HNP is not insanely expensive, as it might have been considered when the shares hit $50 a bit over a year ago, but it isn’t particularly cheap, either — it trades at an estimated forward PE ratio of about 17, about the same as Empresa Nacional de Electricidad in Chile (EOC) and a bit lower than CPFL in Brazil (CPL), but far pricier than some multinationals like AES, or many US power generators like Mirant or Duke. Like most power plant owners HNP is pretty heavily leveraged, so the cut in interest rates in China should also help their profitability — and since they have tight relationships with the government, one might assume (rightly or wrongly) that they’ll be able to keep rolling over debt with the help of the government, their parent company, and state-controlled banks.

So whaddya think? Are you worried about declining electricity demand in China, or does a somewhat staid power generation business seem appealing as coal prices fall?