Huaneng hit by plunge in profits

Huaneng Power International, the listed unit of China's largest power producer China Huaneng Group, saw its share price plunge 7.5 per cent after it posted an annual profit much worse than expected. Analysts warned its outlook remained challenging this year.

The company, which produced 6.6 per cent of the mainland's power output last year, on Tuesday reported a 64.8 per cent drop in net profit to 1.18 billion yuan (HK$1.44 billion), 28.9 per cent below the average estimate of analysts polled by Bloomberg.

It fell into a net loss of 230 million yuan in the fourth-quarter, after a profit of 1.41 billion yuan in the first nine months.

Stripping out a net profit of 1.28 billion yuan it earned from its Singapore plants in the full year, its mainland plants recorded a combined loss of 102 million yuan.

'The [analysts'] consensus has overestimated [Huaneng's] benefit from [the mainland] tariff hike on December 1,' wrote Citi head of Asia utilities research Pierre Lau.

Huaneng said in December the rise would lift its average tariff by 28.8 yuan per megawatt-hour. This would amount to around 6.7 per cent of its average tariff.

The firm's poor profit comes even as its revenues jumped 27.9 per cent to 133.42 billion yuan on the back of a 22.3 per cent rise in power sales.

Benefits from higher sales were more than offset by a 9.24 per cent rise in fuel cost per unit of power sold and a 46.5 per cent jump in interest expense to 7.74 billion yuan. The increment in interest payment exceeded its entire pre-tax profit for last year.

Huaneng plans to achieve power output of 340 billion kilowatt-hours from its mainland plants this year, up 8.4 per cent from last year. It hopes this will lift its average plant use to 5,600 hours from 5,552 hours last year.

Lau said its Singapore operation's profit surge of 85 per cent last year was on the back of constrained natural gas supply that boosted power demand and prices temporarily, adding the high profitability looked unsustainable this year.

With the poorer-than-expected profit for last year, the spot-market coal price rebounding last week after a 10 per cent decline since November, and little scope for power prices being raised soon, he has cut his earnings forecast for Huaneng by 12 to 17 per cent for this year and next.

He predicts its profit will rebound to 3.78 billion yuan this year and 4.14 billion yuan next year.

Huaneng's share price fell up to 9.9 per cent before closing 7.5 per cent lower at HK$4.31 yesterday.