Datang’s 1Q14 net profit was up 0.5% yoy and 18% qoq (based on 4Q13 recurring earnings), which accounts for 18%/21% of DB/consensus forecast. The flat yoy performance is mainly due the tariff cut in Sept 2013, loss incurred from non-power business (600m pre-tax loss) and less investment income, which offset the impact of unit fuel cost decline (-13% yoy). Although Datang's core power business is in a good spot thanks to fuel cost decline and delayed tariff cut, the continued technical issues facing its chemistry projects may lead to higher earnings volatility than pure IPPs until we see a longer stable operations achieved. Management held a results briefing this morning and we provides the key takeaways as below.
Power business: unit fuel cost, utilization and tariff
Unit fuel cost: In 1Q14, Datang’s unit fuel cost dropped by 13% yoy and 3.2% qoq to Rmb165.54/MWh. Management maintained a whole year guidance of 5% yoy decline in unit fuel cost.
Utilization: Overall utilization hours declined by 50hrs to 1,122hrs, mainly dragged down by low hydro utilization (-122hrs yoy to 352hrs) due to significant less rainfall in regions where Datang’s hydro assets are located.
Tariff: management said the conditions of fuel-cost pass through mechanism have been met currently, but the timing of tariff adjustment is not clear and by far they haven’t received any related notice yet.
Non-power business and associates: Duolun, Keqi and Ningde
Datang‘s non-power business incurred Rmb600m pretax loss in 1Q14 including Rmb500m loss from Duolun, Rmb80m loss from coal mines and Rmb100 loss from other renewable. Investment income also declined by Rmb235m mainly on Rmb100m loss from Ningde Nuclear on its maintenance and c.Rmb100m less contribution from trusts.
Duolun: PP output in 1Q14 is 37,300ton (12.4% of its whole year target of 300,000tons) mainly due to an 11-day maintenance in March and breakdown of one of the three gasifiers. The remaining two gasifiers achieved over 80% utilization rate entering into April.
Keqi coal-to-gas: Keqi produced 42m cum natural gas in 1Q. Series A has already resumed gas supply while series B has been ignited in early April. The company maintained its whole year target of 1bcm output.
Ningde nuclear: incurred Rmb100m pretax loss in 1Q mainly due to the scheduled maintenance of unit 1 during the period. Its unit 2 will be put into operation in early May and apply national benchmark tariff of Rmb430/MWh.