Huaneng outlook bright on profit in first half
Huaneng Power International's turnaround is expected to continue in the second half of the year after it posted better-than-expected first-half profit, but next year's profit may be crimped by power price cuts.
The listed unit of the mainland's largest power producer China Huadian recorded a net profit of 5.62 billion yuan (HK$7 billion) for the six months to June, up 165 per cent from a year earlier. The main driver for profit growth was lower coal costs, followed by a reduction in interest expense.
Turnover fell 4.64 per cent to 64.06 billion yuan, partly on the back of a 0.46 per cent drop in output due to slower economic growth in much of its operating areas in coastal regions.
Another reason was a 5.8 percentage point shrinkage in market share at its Singapore unit, Tuas Power, Peter Yao Sheng, head of utilities and clean energy research at BOC International said in a research note ahead of the results.
Huaneng's management warned in March that competition in the oversupplied market in Singapore would remain keen this year due to more capacity commissioning, after its market share fell to 25.2 per cent last year from 27.1 per cent in 2011. Power price there also declined last year.
The firm paid US$3 billion in 2008 for Tuas and enjoyed solid profits until 2011 owing to tight power supply.
It did not provide coal cost details in its results filing to the Shanghai stock exchange, but Yao estimated its fuel cost per unit of output dropped 17.7 per cent year on year in the six months.
For the full year, he projected the cost would fall 15.8 per cent, but rise 0.5 per cent next year before dropping 0.3 per cent in 2015.
Yao said mainland power producers were expected to enjoy relatively high profitability in the second half of the year since coal prices had fallen about 8.8 per cent this year. They have declined about a third since late 2011.
The biggest uncertainty facing power producers is the risk of a price cut towards the end of the year because of a reform on the mechanism setting power prices.