China Resources Power Holdings, the most profitable Hong Kong-listed mainland power producer, saw its share price rise 4.9 per cent after it posted a 20.8 per cent rise in first-half profit and tipped better second-half profitability on lower coal costs.
The company, which operates 59 power plants across the mainland with a total generation capacity of 22.44 gigawatts - roughly 2 per cent of the industry's capacity - had a net profit of HK$3 billion for the year's first six months, up from HK$2.48 billion a year earlier.
Excluding a first-half foreign exchange loss of HK$117 million and a gain of HK$467 million in the year-earlier period, net profit would have jumped 55 per cent year on year, chief financial officer Wang Xiaobin said.
Revenue rose 6.6 per cent to HK$30.94 billion, on the back of a 3.2 per cent rise in output and a 6.2 per cent increase in the average power selling price.
The revenue growth more than offset a 4.9 per cent rise in total fuel costs and a 56 per cent jump in finance costs because of higher loan interest rates. Fuel costs accounted for 71 per cent of total operating expenses.
Wang expects profitability to further improve in the second half, as the cost of coal per unit of power output was expected to fall more than 4 per cent for the whole of this year from last year. It rose 0.6 per cent year on year in the first half. More than 90 per cent of its capacity is coal-fired.
Lower coal costs are expected to more than offset the negative effect of lower plant usage, which pares profitability by raising fixed costs such as depreciation on a per-unit-of-output basis.
Company president Wang Yujun said he expected full-year plant usage to reach 5,700 to 5,800 hours, about 4 per cent lower than last year's 6,001 hours.
Utilisation falls when growth in power demand trails the rate at which new plant capacity is added.
China Resources Power sources two-thirds of its coal needs via annual contracts, and the rest from the spot market. Spot market prices were as high as 40 per cent above contract prices. Beijing reined in contract prices as part of measures to check inflation.
The economic slowdown has seen mainland power-station coal prices plunge some 26 per cent since November, to levels just above contract prices.
The industry regulator, the National Development and Reform Commission, has sought industry feedback on its proposal to take advantage of depressed coal prices to phase out state intervention gradually in power-station coal prices.
Wang Yujun said he did not think the reform would start this year, because of its complexity.
He said the reform would work only if power companies were allowed to pass on higher or lower coal costs fully to consumers, and if railway firms agreed to move coal for all power generators regardless of their procurement volume and prices.