Huadian delivered solid FY15 results with net profit increasing by 23% yoy toRmb7.3bn thanks to asset injection and fuel cost savings. Stripping out one-offgains/losses, recurring profit increased by 16% yoy to Rmb8.6b, 10% aboveDBe/consensus of Rmb7.8b. The stock is currently trading at 0.9 x15 P/B witha core FY15 ROE of 20% (or 23.5% if adjusted for A share proceeds ofRmb7.1bn in 3Q15), which would leave a sufficient buffer for potentialearnings pressure from lower utilization and tariff discounts under direct powersupply. In addition, Huadian also looks well poised on the asset injection frontwith gearing levels falling dramatically during the year. Buy.
Earnings growth driven by fuel cost declines and asset injections
Huadian’s reported net profit increased by 23% yoy to Rmb7.3b, primarily dueto asset injection of Hubei Power (5.1GW at acquisition) and a 22% yoy drop inunit fuel costs. Excluding one-off impairment losses (Rmb1.5b), disposal gain(Rmb98m), electricity price regulation fund (Rmb122m), etc., its recurring netprofit went up by 16% yoy to Rmb8.6b. The impairment primarily consists ofRmb1.5b impairment provision related to its coal mines on declining coal price.
40% payout as committed, strong free cash flow and sharply reduced gearing
Meanwhile, Huadian declared a dividend of Rmb0.3/share (+11% yoy),implying a 40% dividend payout ratio on reported earnings. Huadian had totalcapex of Rmb16b in 2015, and FCF turned positive in FY15 (Rmb11bn vs. –Rmb1.6b in FY14). It plans c.Rmb19b capex in 2016. Following strong FCF andnon-public A share placement in 2H15, its net gearing improved significantlyfrom 253% in FY14 to 163% in FY15.
Utilization to be weak in 2016, flat generation outputs guided
The company’s thermal utilization decreased by 575 hrs to 4,538 hrs in FY15due to weak power demand. The company expects utilization will continue todecrease in 2016, while guiding for a flat power generation output of 182bnkWh in 2016.
The company will host an analyst briefing at 400pm on 29 April at Shangri-LaHotel, Hong Kong.