Huadian delivered strong FY13 results with 1) recurring net profit 29%/27% above DBe/consensus, 2) FCF turned positive while net gearing improved by 76ppt and 3) payout raised to 40.5% from 31.8%, dividend yield at 8.2%. The beat in recurring earnings is mainly due to better cost control, in particular fuel costs. Trading at only 6x14E PE and 0.8x 14E P/B, we reiterate Buy on the stock with TP of HK$5.5. We also see the possibility of asset injection in 2014-15 considering its parentco’s capacity of 110GW vs. Huadian’s 36GW.
FY13 net profit 29%/27% above DBe/consensus; payout raised to 40.5%Huadian Power’s 2013 net profit surged by 183% to Rmb4.1bn, driven by 11.8% growth in power generation and 14.8% decline in unit fuel cost. Stripping out one-off disposal loss (Rmb404m) and impairment (Rmb528m), recurring net profit was up by 244% to Rmb4.8bn. This is 29%/27% above our/consensus forecast. Huaidan declared an Rmb0.225/share dividend (DBe: Rmb0,20/share), indicating 40.5% payout ratio (up from 31.8% in 2012) and 8.2% yield at the current price of HK$3.5.
FCF turned positive earlier than expected; net debt/equity down 76ppt yoyUnder PRC GAAP, operating cashflow (net interest expense) increased to Rmb15.9bn (from Rmb6.1bn in 2012) while capex declined to Rmb15.3bn (from Rmb16.2bn in 2012). As a result, Huadian’s free cashflow turned positive to Rmb562m from Rmb9.8bn outflow in 2012 vs. our expectation of a negative of Rmb2.2bn. Meanwhile, net gearing (net debt/ equity incl. MI) was down by 76ppt yoy to 329% (vs. 405% in 2012), which is lower than our estimate of 356%.
Rmb528m impairment; potential upside to FY14 earningsHuadian booked Rmb528m impairment mainly on Suzhou Biomass, Hangzhou Banshan and long-term receivables, which in total impacted its net profit attributable to shareholders by Rmb376m. Despite a tariff cut in Sept 2013, 4Q13 net profit (under PRC GAAP) stands flat qoq at Rmb1.2bn even after some one-off losses, indicating potential upside risks to our current 2014E forecast of Rmb3.9bn net profit. 4Q13 annualized ROE reached 23%.
2014 outlook: power output +5.4% yoy; potential asset injectionFor 2014, Huadian guided 186bn kWh output (+5.4% yoy) and 5,100 utilisation hours (vs. 5,127hr in 2012). We also see the possibility of asset injection in 2014-15 considering its parentco. capacity of 110GW vs Huadian’s 36GW.
Unit fuel cost guidance will be delivered during its analyst briefing at 17:00, 24 Mar (Salon 5, Level 3, JW Marriott). As a reference, CR Power, Huaneng and CPI guided 3-5% yoy decline in coal cost in 2014. We’ll follow up with more details afterwards