Hong Kong company reporting season

Datang International Power posts 36pc first-half profit drop on higher coal costs and lower power prices

The power generator says the profit decline was primarily due to surge in coal prices and a bigger portion of power sales being subjected to market competition

PUBLISHED : Tuesday, 15 August, 2017, 8:56pm
UPDATED : Tuesday, 15 August, 2017, 11:00pm

Datang International Power Generation, the listed flagship of one of China’s big five state-owned electricity producer majors, reported a 36.1 per cent decline in interim profit, battered by sharply higher coal costs and lower power selling prices.

The Beijing-based unit of China Datang Group had a net profit of 1.09 billion yuan in the year’s first six months, down from 1.71 billion yuan in the same period last year.

The profit is lower than the 1.33 billion yuan earnings estimated by Citi’s head of Asia-Pacific utilities research, Pierre Lau, and amounted to 46 per cent of the 2.35 billion yuan full-year average estimate of 11 analysts polled by Bloomberg.

The profit decline “was mainly due to a 73.9 per cent surge in the price of coal, and a greater portion of power sales being subjected to market competition,” Datang said in a filing to the Shanghai stock exchange, where it’s also listed besides Hong Kong.

The decline was despite the disposal of its heavily loss-making operations that turn coal into fuel, chemicals and natural gas, on which it recorded a 2.2 billion yuan loss in last year’s first half.

The fuel cost jump was higher than the 51 per cent increase estimated by Lau, and could not be offset by reduction in lower depreciation, staff and other costs.

First-half revenue grew 2.9 per cent year-on-year to 30 billion yuan, with a 10.5 per cent rise in electricity output insufficient to offset lower power prices amid the industry oversupply.

Beijing has been gradually lifting the proportion of power sold by generators (at prices and volumes negotiated directly with large users) in the past two years, as part of the reform to let energy prices better reflect demand and supply. However, most of the power generated is still sold to grid operators at state stipulated regional benchmark prices.

The company said in a stock exchange filing last month that it saw a 12.4 per cent increase in output from its coal-fired plants in the first half amid faster power demand growth, while that of hydro plants fell 3 per cent due to lower water inflow.

Output of its wind farms grew 9.5 per cent and that of its solar farms jumped 51.4 per cent as more units were commissioned.

Coal-fired plants accounted for 71.4 per cent of its total installed generating capacity of 47 giga-watts at the end of June – 2.9 per cent of the national total. Hydro plants took up 17.2 per cent of the company’s capacity, wind farms 4.7 per cent and solar farms 0.7 per cent.

National power demand grew 6.3 per cent year-on-year in the first-half, much faster than 2.7 per cent recorded in last year’s first-half.

Datang is not the only power producer – whose plants are mainly fuelled by coal – to be hurt by surging coal costs in the first half, during which Beijing has not lifted power prices to offset the cost increase.

Huaneng Power International early this month reported a 96 per cent year-on-year plummet in first-half profit, while China Resources Power has warned last month it expects to post on Wednesday, a 60 to 70 per cent interim profit decline.

But coal-fired generators’ profit prospects are expected to improve in the year’s second-half, since Beijing announced in late June, plans to cut or cancel various government levies borne by power distributors and end-users, to be coincided with a rise in producers’ wholesale prices from July 1.

So far, details of any power price rise have not been announced.

In a separate filing on Tuesday, Datang International said it agreed to set up a joint venture with local government-backed Pingtan Comprehensive Experimental Zone Communications Investment Group to build offshore wind farms in the Changjiang Bay in Fujian province.

The project will be developed in two phases with a combined 250 mega-watts of installed capacity. Datang will have 80 per cent of the venture, with Pingtan owning the rest.

Datang’s shares closed 0.4 per cent higher at HK$2.51 on Tuesday. They have risen 23.6 per cent year-to-date, compared to a 23.5 per cent rally of the Hang Seng index.