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雷达卡
China Coal Utilities
3Q14 Preview; Inland IPPs
Outperform Coastal IPPs
Chinese IPPs are due to announce 3Q14 results
starting Oct. 21. In Q3-14, inland IPPs outperformed
coastal IPPs due to structural power oversupply in
coastal China. We avoid Huaneng and CRP ahead
of sequential decline in coal utilization hours in the
coming few years.
3Q14 results for coastal IPPs may disappoint due
to poor power volume: Huaneng’s and CRP’s net
generation growth for 3Q14 was -16% and -6%,
respectively, YoY, vs. Huadian’s -2% and Datang’s
+2%. Poor power demand and low temperatures in
coastal areas drove coal utilization hours down by 20-
30%, and this trend should accelerate with new power
supply from new nuclear power plants and W2E power
transfer from 2014-2017. We believe consensus
estimates for Huaneng and CRP have yet to factor in
structural coal utilization pressure in coastal China.
Spot coal price not expected to gain in 4Q14: Spot
coal price recently rebounded 3% due to Shenhua’s
price hike and the announced import ban. We don’t
expect China’s spot coal price to rally as it did last year,
due to high coal inventory and weak power demand,
and as no power tariff cut is anticipated in Dec. 2014.
Huadian and Datang remain top picks: We like
Huadian and Datang for their inland exposure and low
risk on thermal utilization. Despite Huaneng announced
9.3GW asset injection, we see that’s the only quality
assets available. We like Huadian’s asset injection
potential in coal/hydro and Datang’s value creation
from coal-chemical restructuring.
We initiate A-share coverage at OW on Huaneng-A
and Huadian-A, and EW on Datang-A. We expect
Huaneng-A and Huadian-A may benefit from the
coming Shanghai-HK Stock Connect program, given
Huaneng-A’s 12% discount and Huadian-A’s 9%
discount to their respective H shares. Our PTs imply
32% and 46% upside for Huaneng -A and Huadian-A.
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