2013 results missed expectation
In 2013, NPAT -11% YoY to Rmb3.5bn or Rmb0.26/sh.
Results missed expectation on impairment provision of Rmb1.26bn in 4Q13 (including Rmb0.3bn inventory impairment of Xilin, Rmb0.24 fair value impairment of Inner Mongolia Yitai, asset impairment of Rmb0.67bn). Stripping out one-offs, recurring earnings was up 87% YoY, largely in line.
Trends to watch
Power business growth: Sluggish 2014, regained momentum in 2015 thanks to capacity additions.
2014: New Gaojing project delayed leading to limited expansion. Less sensitive to weak coal prices as most of Datang's existing projects are mine-mouth. We think GM is likely to decline to 29% from 31% under 1) tariff cut of 2% and 2) fuel costs of 5%.
2015: Segment profit will rebound on 11% capacity YoY.
Coal chemical business: Earnings profile unclear.
Coal-to-gas: The Keqi project commenced last December, and we have doubts on its operational stability. Further, phase II & III are both expected to be delayed. The Fuxin project is anticipated to commence phase I in 3Q14 with limited contribution to 2014 earnings.
Duolun project: Registered a loss of Rmb0.8bn in FY2013, and we expect a reduced loss of Rmb0.5~0.6bn for FY2014.
Earnings revisions
Earnings expected to increase by 5% to Rmb3.7bn and 6% to Rmb3.9bn, suggesting EPS of Rmb0.28 and Rmb0.30.
Valuation and recommendation
Maintain HOLD, with TP of HK$3.00 on 8.0x P/E. Forecast suggests lackluster growth for power business though 2014~15, and profitability of coal-to-chemical business remains to be seen.
Risks: Coal price fluctuations; chemical projects miss expectation.