Datang’s 2013 recurring net profit was up by 47% yoy to Rmb4.6bn, in line with DBe/consensus. Positives include 1) dividend payout increased to 45%, indicating 5% dividend yield, 2) FCF outflow narrowed, with 39% improvement in gearing. For the Rmb2.2bn pre-tax loss in chemical segment, we believe the market is fully aware of the risk and narrowing loss from rising Duolun plant utilisation will represent earnings upside risk. Datang is currently trading at an attractive 6x 14E PE and 0.6x 14E PB. Buy.
Recurring net profit up 47% yoy; payout increased; FCF, net gearing improved
Datang’s 2013 reported net profit was down by 12% yoy to Rmb3.53bn. Stripping out the Rmb1.26bn impairment, recurring earnings is up 47% yoy to Rmb4.54bn, in line with our forecast of Rmb4.6bn and street consensus of Rmb4.5bn. Given Datang’s still high capex in 2013 (Rmb 32.2bn), its free cash flow remains negative, but the outflow has been narrowed to Rmb10.4bn from Rmb13.6bn in 2012. Gearing has improved by 39% to 288% in end-2013 (vs. 317% in end-2012). Datang declared a Rmb0.12/share dividend, representing 45% payout ratio (up from 34% in 2012 and higher than our estimate of 40%).
Rmb1.26bn impairment; segment breakdown
Datang booked Rmb1,263m impairment in 2013 including 1) Rmb241m for available-for-sale investment on Yitai Coal H share, 2) Rmb357m for inventory loss and 3) Rmb665m for fixed asset (mainly Gaojing coal-fired power plant). Power generation contributed Rmb9.5bn pre-tax profit (up by 69% yoy on 20% decline in total fuel cost) while chemical recorded Rmb2.2bn loss given the still unsatisfactory utilization rate of Duolun project (213k tons of polypropylene output in 2013, or 46% of average utilization rate of its 460k capacity).
Co-investment with EDF; 4.3GW capacity approved in 2013
Datang announced that EDF in France will jointly invest in Fuzhou Power (2x1000MW) with a 49:51 interest with Datang. To our knowledge, EDF's planned investment in Fuzhou Power will be the first major investment in China's thermal power industry by a western power player since 2002. Meanwhile, Datang received approvals for 20 power generation projects with total capacity of 4,330M in 2013 including 1) 3,634MW of thermal (Fuzhou 2x1000MW, Shenzhen Baochang 2x467MW gas-fired and Shendong 700MW), 2) 451MW of wind, 3) 200MW of solar and 4) 45 MW of wind. During the year, Datang also acquired 4% stake in a new nuclear project (CNNC Liaoning).
2014 outlook: 1% output growth; Rmb22.2bn planned capex
Datang expect to add 2.97GW of power generation capacity in 2014 with total power output reaching 193.5bn kWh (+1% yoy vs.191.9bn kWh in 2013). Planned capex is Rmb22.2bn in 2014 including Rmb6.95bn for thermal, Rmb7.47bn for hydro, Rmb2.2bn for wind and solar, Rmb4.84bn for coal chemistry and Rmb0.62bn for coal mine.
Datang will hold an analyst briefing at 9:30am, 26 Mar (5F, Island Shangri-La). We’ll follow up with more details afterwards.