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Datang International Power Generation looks to fall in coal costs to boost profits

Analysts say power firm's outlook is uncertain because of lack of output growth as net profit doubles for 2012 on back of lower fuel prices

PUBLISHED : Wednesday, 27 March, 2013, 12:00am
UPDATED : Wednesday, 27 March, 2013, 4:32am

Datang International Power Generation, the listed subsidiary of the nation's second largest power producer, China Datang Group, said yesterday it expects its profits to be helped by lower coal prices again this year.

However, analysts said its earnings outlook was uncertain, given a lack of output growth and weak profits from its non-power businesses.

Datang's vice-chairman, Cao Jingshan, said the company could see its average coal cost per unit of output drop by 3 to 5 per cent this year compared to last year. Some rivals have projected a 5 per cent fall.

Last year Datang saw its cost of coal per unit of output fall 3.6 per cent. The cost of coal took up 69.4 per cent of total operating costs in 2012. Those lower fuel costs helped the company more than double net profit to 4.06 billion yuan for last year, it revealed on Monday. Excluding non-recurring gains, pre-tax profit grew 72 per cent from 2011.

Datang is aiming to generate 200 billion kilowatt-hours (kWh) of power this year, 1 per cent less than last year's 202 billion kWh.

Liu Yan, Datang's general manager of corporate finance and capital management, said the firm has erred on the conservative side when setting this year's target. For comparison, one rival, Huaneng Power International, set itself a target of a 5.8 per cent rise in output.

Datang plans to raise total generating capacity by 2.2 per cent this year, a research note by Daiwa Securities said, quoting a projection by the company's management. Huaneng, for comparison, is targeting a 7 per cent growth in capacity and China Resources Power Holdings one of 12 per cent growth.

Daiwa's head of Asia utilities research, Dave Dai, said Datang's profit outlook was uncertain, because of its less optimistic projection for reductions in coal costs, less aggressive targets for output and capacity growth, and a lack of profit visibility at its non-power businesses.

The company's coal-to-chemical project in the Inner Mongolia autonomous region has entered commercial production this year but its output target of 330,000 tonnes is less than the designed annual capacity of 460,000 tonnes, because of what were described as "technical challenges".

Datang's two coal-to-natural gas projects are expected to start trial production by June and December. The first unit of its nuclear power project in Fujian province is scheduled to start production next month.

Meanwhile, Xie Changjun, president of Asia's largest wind power generator, China Longyuan Power Group, said he expected the company's net profit to improve this year, after a flat performance last year because of a lack of transmission capacity on power grids.

Xie said the projection was that less than 10 per cent of the company's wind power output would be wasted because of capacity constraints this year, down from 13.9 per cent last year.

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