Harbin Power cutting output on slow demand
Harbin Power Equipment, one of the nation's three largest producers of power generation equipment, plans to cut output this year by 10 per cent to 20 per cent after customers delayed delivery or pulled orders.
General manager Qu Dazhuang said the company had examined its order book and decided to take out some of its production to reduce risk.
'Given market uncertainty, we have prioritised production for power projects that have received government approval and have secured financing,' he said a day after Harbin unveiled a worse than expected 31.82 per cent net profit fall for last year.
Mr Qu said a few customers had cancelled orders, including China Power Investment Corp's Tuerqi power project, and orders for a 1.2 gigawatt project in Russia had been halved.
China was expected to add only 70 GW of new power generating capacity this year, down 23 per cent from last year, Harbin Power said in its results announcement.
Consistent year-on-year declines in power demand since last October amid the global financial crisis and a plant construction binge in previous years resulted in oversupply, prompting power producers to slow building of new plants.
The firm added 7.9 billion yuan (HK$8.97 billion) of new orders in the first quarter, down 36.4 per cent from the year-earlier period, said deputy general manager Liu Zhiquan. Outstanding orders fell to 91.5 billion yuan at the end of last year from 95 billion yuan at the end of June.
Mr Liu expected gross profit margin to be flat or to drop slightly this year as the negative impact from last year's higher priced raw material inventory might not be offset by the positive effect of lower steel prices this year.
This could imply a decline in operating profit this year as production volume is expected to fall.
The company on Sunday posted a net profit of 1.04 billion yuan, 15.3 per cent less than the 1.23 billion yuan mean estimate of 14 analysts polled by Thomson Reuters.
Mr Liu attributed the decline to high steel prices and yuan appreciation in the first half of last year, which squeezed gross profit margin to 13.4 per cent from 15.65 per cent in 2007. He expected Harbin Power's nuclear power equipment segment to remain loss-making this year.