Huadian recorded a 1H15 net profit of CNY3,559m, up 29%YoY, in line with market expectations.
1H15 unit fuel cost of coal-fired generation was down 21%,whilst power generation was also down by 8%.
We believe there will be a lack of near-term catalyst afterthe asset injection announced in May 2015. We maintainHOLD, and have revised down TP to HKD6.50.
What’s New
After a positive profit alert in early August, Huadian posted 1H15results that were in line. Revenue was down 9.4% YoY mainly dueto weaker power generation and tariff cut in 1H15. Averageutilization hours in 1H15 were down 13%, and coal-fired utilizationhours were also down by 11% YoY. Huadian did not recommend anyinterim dividend.
What’s Our View
1H15 net profit was in line with market expectations. Huadianposted a positive profit alert in early August and said theestimated net profit will increase by 25%-35% YoY. Despite weakgeneration and revenue, decrease in coal cost helped marginexpansion and drove the earnings growth in 1H15. Operatingmargin jumped 5.76ppt in 1H15 to 26.56%.
We think expectations of margin expansion are widely understoodby investors. Another positive catalyst should be asset injectionfrom the parent. However, in May 2015, Huadian alreadyannounced the asset injection of 82.6% interest in Hubei Power. Webelieve there will unlikely be another round in the near term.
After factoring in 3% CNY depreciation and adjusting down ourpower generation forecast by 4ppt in FY15, our DCF-based targetprice decreased to HKD6.50 from HKD8.80. Maintain HOLD.