Harbin Power sees pressure on earnings from material costs

PUBLISHED : Tuesday, 15 April, 2008, 12:00am
UPDATED : Tuesday, 15 April, 2008, 12:00am

Harbin Power Equipment, one of the mainland's top three power generator makers, said this year would be challenging because of rising raw material costs and tightening measures by the central government.

General manager Qu Dazhuang said yesterday it was unlikely that the company would be able to lift its gross profit margin by the 4.52 percentage points recorded last year.

Maintaining the margin at 15.65 per cent could also be difficult, Mr Qu said.

Analysts said every one percentage point change in gross profit margin would move the company's earnings by about 14 per cent. Harbin Power's profit surged 49.13 per cent last year to a record 1.53 billion yuan (HK$1.7 billion).

Mr Qu said the company paid between 10 and 15 per cent more in the first quarter from the end of last year for steel. Its major raw materials accounted for about 70 per cent of total costs.

Mr Qu said new orders might fall this year as power plant construction slowed under Beijing's tightening measures.

'There are delays in the construction of new power plants, and that's affecting us,' he said, without giving an order projection for this year.

Last year, new orders were worth 51.3 billion yuan, up 80 per cent from 28.5 billion yuan in 2006. At the end of last year, outstanding orders were worth 84.8 billion yuan, of which 30 billion is scheduled to be delivered this year.

Mr Qu said the firm was stepping up efforts to develop nuclear power and hydropower generation equipment to expand its business scope. It would also make more high-technology and large-scale equipment to enhance competitiveness.

Last year, coal-fired power generation equipment accounted for 74 per cent of the firm's revenue and 79 per cent of its profit. The trend would continue, said deputy general manager Liu Zhiquan.

The company has set aside 1.02 billion yuan for capital spending this year, about 61 per cent of which will be invested in nuclear power-related projects.