Chinese coal-fired power firms to post weaker profits amid capacity glut
Weak power demand and rapid growth in new generation capacity to hurt profits of key players
Huaneng Power International is expected to kick off on Tuesday the reporting season for Hong Kong-listed mainland Chinese firms that focus on coal-fired power generation, whose interim profits are expected to have fallen due to lower power prices and falling plant utilisation.
This is despite the fact that savings on fuel costs and interest expenditure from weaker coal prices and interest rate cuts have helped soften the blow.
“For players with more [coal-fired generation] exposure, we expect profit to be ... hurt by lower tariffs as a result of both tariff cuts in January [this year] and higher direct power [sales to big end-users that attract lower tariffs], and lacklustre output,” Michael Tong head of Hong Kong and China research at Deutsche Bank said in a research report.
According to Tong, Huaneng, the listed flagship of China’s largest power producer China Huaneng Group, is likely to report a 26 per cent year-on-year decline in first-half recurring net profit to 6.76 billion yuan, while rival China Resources Power (CRP) may see a 23 per cent drop to 5.81 billion yuan. Huadian Power International, another key player, could slide 16 per cent to 3 billion yuan.
Simon Lee, head of Morgan Stanley’s Asia Pacific utilities research, expects milder profit declines of 18.5 per cent for Huaneng, 15 per cent for CRP and 15.1 per cent for Huadian.