Management hosted an analyst briefing this afternoon on FY16 resultsannounced last night. We summarize key messages below. Among those, thenew CEO Mr. Tian said the company will strive to cut admin and maintainencecosts by 10% yoy in 2017, which is the first time the company released suchcost reduction target.
Guidance on output, utilization hours and fuel cost
Management expects total output in FY17 to stay flat yoy at 190bn kWh,implying a reduction in utilisation of 100-200hrs. Its FY16 overall UFC (excl.gas) was 9% yoy to Rmb153.2/MWh. Management did not provide a guidanceon FY17 UFC change but expects coal price to fall in the following monthswhich hopefully could lead to a flat yoy average UFC. Also, despite a smallincrease in spot coal price, Huadian's average coal price was down month onmonth in Jan-Feb'17. Management also aims to reduce maintenance andadmin costs by 10% in 2017.
Guidance on market-based power sales
According to management, Huadian sold 30% of its total output on a mark-tomarketbasis in 2016, at an average tariff discount of aroundRmb4.6cents/kWh. Looking into 2017, management expects the market-basedvolume mix to stay at 30-35%. On the tariff front, management expects thetariff discount via bidding this year to narrow, given the increased fuel cost.For 2M17, the tariff discount has been narrowed to Rmb3.5cents/kWh.
Guidance on new capacity, capex and interest rate
Huadian expects 1,980MW coal-fired capacity (Shandong, Hubei), 570MWwind (Shandong, Hubei, Hebei, Shanxi, Guangdong) and 207MW solar(Shandong, Hebei, Hubei, Zhejiang) to be installed in 2017. For 2017,management guided a stable capex spending at Rmb15bn, including Rmb4bnrelated to technology and environmental upgrade. In particular, an increasingportion of capex will be invested in wind/solar projects. Avg. finance cost was4.41% in 2016 and is expected to be stable in 2017.