China Resources Power Holdings, the most profitable Hong Kong-listed mainland power producer, expects an improvement in industry profits this year - as long as coal prices don't rebound substantially after a 10 per cent fall in the last few months. The power generation industry benefited from a power price rise averaging 6.8 per cent across the nation, which took effect on December 1. But as Beijing had lifted power prices later and in smaller magnitudes than increases in coal prices - which are largely market forces-determined - the sector's profitability had been low in the past few years. CRP chief executive Wang Yujun said industry power prices still had to move 3 fen per kilowatt-hour higher - roughly 8 per cent - to close the gap from where they are supposed to be on an accumulated basis, based on the government's pricing formula. In 2005, Beijing launched a power pricing system. Where coal prices surge by more than 5 per cent over a six-month period, power prices will be raised to offset 70 per cent of the coal price increase. But it has not been implemented properly due to concern that doing so would stoke inflation. With the power price rise in December and a 10 per cent decline in the spot-market coal price in the past four months, Wang said industry profits should see a 'marked improvement' so long as coal prices remained lower than last year. CRP yesterday posted a 9.2 per cent fall in net profit to HK$4.45 billion for last year, despite revenue growing 25 per cent to HK$60.71 billion on the back of a 15.8 per cent rise in power output, a 3.6 per cent rise in the average power price and a 43.8 per cent jump in coal output to 16.4 million tonnes. 'This was because sales growth was more than offset by a 39 per cent leap in finance costs to HK$3.52 billion due to higher borrowings and higher interest rates as a result of Beijing's bank lending tightening policies, and an 11 per cent rise in coal cost per unit of power output.' Besides lower coal costs and higher power prices, CRP's profit would also be helped by a target to increase coal output by 12.5 per cent to 18.5 million tonnes this year. Meanwhile, Harbin Electric, one of the mainland's three largest power generation equipment producers, said its gross profit margin, which reached 20.1 per cent last year - the highest in six years - would reflect a lot of pressure. 'High inflation last year means hikes in raw material prices and other production costs will be reflected in our books this year,' said deputy general manager Liu Zhiquan. 'We will strive to offset that by centralised materials procurement and cutting down outsourcing of some of the production.' On Sunday, it posted a 22.7 per cent rise in net profit to 1.23 billion yuan (HK$1.51 billion), despite sales sliding 2.4 per cent to 28.5 billion yuan, as the gross profit margin jumped to 20 per cent from 14.4 per cent in 2010.