Huaneng Power says it will miss output target

Huaneng Power International, the listed unit of the mainland's largest power producer China Huaneng Group, will be unable to meet its production target set earlier this year amid the economic slowdown but the impact on profit is expected to be offset by lower coal costs.

Analysts who attended a postinterim results teleconference with the management quoted in research reports that the company expects output this year to drop to as low as 320 billion kilowatt-hours - 5.9 per cent less than the 340 billion kWh it predicted in March when it announced its results for last year.

They also cited them as saying this year's fuel cost per unit of output is expected to decline 3 per cent from last year, compared to a March guidance of a 3 per cent increase.

A Huaneng Power spokesman said that while the company believed it would not be able to meet the 340 billion kWh target due to lower-than-expected power demand amid the slowdown, it had not officially adjusted the company's targets as it was difficult to predict the impact of Beijing's economic stimulus policies.

In the year's first half, Huaneng Power's output fell 1.46 per cent year on year due to weak power demand, as well as increased hydropower output, which lowered the need for coal-fired power.

It posted on Tuesday an 87.6 per cent rise in first-half net profit to 2.12 billion yuan (HK$2.60 billion) on the back of softer coal prices and lower interest expenses after Beijing cut loan rates. First-quarter net profit was 919.36 million yuan while the second-quarter profit amounted to 1.29 billion yuan.

BOC International head of utilities research Peter Yao Sheng forecast the company's profit to rise to two billion yuan in the third quarter on the back of lower coal costs, before sliding to 1.6 billion yuan in the fourth quarter on a rebound in coal prices.

Daiwa Securities head of Asia utilities research Dave Dai tipped profits of two billion yuan in the third quarter and 1.2 billion yuan in the fourth.

'Looking forward, we see increasing risk of a rebound in coal prices as supply falls, which would negatively impact margins given Huaneng's high exposure to spot [market] coal prices,' said Barclays analyst Guo Shou in a research note.

Huaneng's share price yesterday edged up 0.7 per cent to HK$5.62.