Huadian’s net profit in 1H15 increased by 29% yoy to Rmb3,559m, beating ourestimates of Rmb3,413m by 4% on lower-than-expected unit fuel cost. Its1H15 earning accounts for 49% DBe FY15 forecasts, which looks on trackgiven newly-acquired Huadian Hubei was consolidated from July. We attendedHuadian’s conference call this morning and summarize key takeaways asbelow. Reiterate Buy rating with 75% potential upside to our target price ofHK$10.4.
Key takeaways from results briefing
Unit fuel cost (UFC) and tariff: in 1H15, Huadian recorded 20.9% yoy decline inUFC to Rmb152.2/MWh, or 16% below its FY14 average of Rmb181.7/MWh.Standard coal cost declined by 19.8% yoy to Rmb494/ton. After a sequentialdrop throughout the first half, the UFC became relatively stable in both Julyand August. Management expects UFC in 2H15 to decrease slightly comparedto 1H15 if spot coal price stabilize at current level. Management also thinktariff adjustment in 2H15 is unlikely.
Capacity & utilization: the company’s total consolidated capacity reached38.44GW by end of 1H15, representing an increase of 4.85% yoy. Thecompany had 2,440MW projects to start operations in 2H15, including 700MWthermal projects. Huadian targets to reach c.46GW capacity by end-2015,implying a 21% yoy increase including the acquired Hubei assets. Thecompany had 2,700MW newly approved projects in 1H15, and its total newlyapproved projects amounted to 9,700MW. According to the management,Huadian’s planned thermal projects such as Laizhou-II (Shandong), Yongli(Ningxia), Shantou (Guangdong), etc. have already been included in “13th- fiveyear” construction plan. Huadian’s average 1H utilization was 2,132 hours,down by 13% yoy. Management guided that utilization will likely to improve in2H15 with less yoy decline vs. 1H15. Total power generation in 2015 couldreach over 190bn kWh (Hubei Company included).
Capex & financial cost: management maintained their full-year budget ofRmb20bn (44% for thermal, 24% for wind & solar, 6% for hydro, 4% for coaland 20% for upgrade, etc.) The company’s financial cost averaged at 5.48%,and management said there is further scope for declines due to laggedtransmission from interest cuts. Management also mentioned that thecompany was planning on setting up power sales companies.
Gas-fired generating units: management advised that the overall profitability ofgas-fired generating units were sound though not as profitable as coal-firedgenerating units. Some gas-fired generating units might apply two-tier tariff.With a likely further gas price cut, its gas-fired generating units should remainprofitable next year.