China Yangtze Power, which operates power plants at the Three Gorges Dam, reported that its first-half underlying profit edged up 4.26 per cent, as gains in overall generation were pared by narrowing margins. For the first sixth months of the year, underlying net profit was 1.74 billion yuan against 1.67 billion yuan in the first half of last year. Turnover grew 11.6 per cent year on year to 3.4 billion yuan. It said net profit rose 71.6 per cent from a year earlier to 2.25 billion yuan, following a one-time gain of 1.18 billion yuan from selling 400 million China Construction Bank shares for 1.6 billion yuan. Gross profit margin slipped to 51.3 per cent, from 54.9 per cent in the same period last year, as operating costs surged 25.1 per cent to 1.1 billion yuan, higher than output growth. The company blamed the cost increases on a change in accounting policy since the start of this year, shortening the depreciation period of its dams to between 40 to 60 years from 45 to 60 years. No reason was given in the interim report. The fall in profit margin limited growth stemming from an 11.6 per cent rise in overall generation to 17.2 billion kilowatt-hours. The Three Gorges Dam generated 10.97 billion kWh of output for the company in the half, up 21.2 per cent year on year on the back of a higher water level at the dam and a 10.44 billion yuan acquisition of two generating units of the dam from parent China Yangtze Three Gorges Project Development. The growth more than offset a 3.11 per cent decline in output to 6.23 billion kWh from the Gezhouba Dam. After the latest sale of bank shares, the power generator still holds 1.2 billion units. Last year, it sold 400 million Construction Bank shares for 1.24 billion yuan. China Yangtze amassed the shares before the latter's stock market listing. BOC International analyst Du Meng wrote in a research note that the interim result was in line with its expectations. The bank raised the target price of its shares to 18 yuan from 15 yuan, citing its growth potential from future asset injections from the parent. 'We believe the most difficult operating period for the company has passed,' the report said. China Yangtze last year reported a 10.8 per cent fall in core operating profit as the worst drought on record struck the mainland's southwest region in the third quarter resulted in very low water flow at the river. The company said it would strive to achieve output of 46.4 billion kWh for the whole of this year, up 29.9 per cent from 35.7 billion kWh last year, adding that it aimed to attain profit growth in the year. Part of the growth will come from its 3.1 billion yuan, 45 per cent stake acquisition in February of hydro and coal-fired power projects developer Hubei Provincial Energy Group.