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SDIC Power Alert:90%1H earnings from hydro power

发布时间:2016-08-31    研究机构:德意志银行

SDIC 1H16 results came in below expectation, with recurring earnings down16% to Rmb2.0bn, which is mainly dragged by deteriorating performance ofseveral thermal plants located in severely oversupply provinces. Nevertheless,SDIC has a balanced capacity portfolio with a 35%:65% capacity mix betweenthermal and hydro/others, and hydro business contributed 90% 1H recurringprofit. Annualized ROE was 15% in 1H16 (vs. 20% in 1H15). As a predominanthydro play, it is trading at undemanding valuation of 10x 16 P/E. Maintain Buy.

1H16 recurring net profit reached Rmb2.0bn, down 16% yoy

SDIC announced 1H16 results after market close on 30 Aug. Reported netprofit dropped 39% yoy to Rmb1.5bn. After adding back one-off items (mainlyRmb535mn provision on guaranteed loan of Qujing company), recurring netprofit dropped 16% to Rmb2.0bn, below our expectations of Rmb2.2bn.Earnings from hydro (mainly through Yalongjiang Hydro, Dachaoshan andXiaosanxia) was largely flat yoy as stronger waterflow are offset by tariff cut.The profit decline was mainly due to thermal tariff cut and decline inutilizations, which cannot be offset by a 20% decrease in standard coal price.As per the disclosure, several of its thermal plants recorded loss in 1H16,including Jingyuan No.2 (Gansu), Yili (Xinjiang), Panjiang (Guizhou) whileQingzhou (Guangxi), Beibuwan/Huaxia/Taipingyang (Fujian) and Xuancheng(Anhui) recorded a sharp decline in profits.

Thermal: power output decreased by 8% with utilization hours down 13% to1,914, but still 86 hours higher than national average. On-grid tariff dropped16% as a result of tariff cut in Apr 2015 and Jan 2016 and increasing directpower supply (DPS) mix.

Hydro: power output recorded 8% output growth driven by better water flowsin Yalong River (Sichuan), partially offset by lower output in Yunnan andGansu. Utilization hours was up slightly by 1% to 1,995 hours. On-grid tariffdropped 6-7% for its hydro plants for Sichuan as a result of a Rmb2-3centstariff cut in Jan 2016.

By region: In terms of revenue, Anhui recorded 24% yoy growth thanks to thecontribution of newly commenced generation units. Sichuan (+1% yoy) andYunnan (-3% yoy) remained stable due to higher exposure to hydro plants.While Fujian (-48% yoy), Guangxi (-38% yoy) and Guizhou (-32% yoy) sawlargest decline dragged by weaker power demand and fiercer competitionfrom hydro power.

Major 2016 guidance

SDIC plans to generate 120bn kwh power in 2016, implying a 5% yoy growth.At end 1H16, total installed capacity reached 27GW, of which 16.7GW is hydroand 9.8GW is thermal. In 2H16 the company plans to add a total of 4.2GWnew capacity, most of which is thermal (QinZhou Phase II 2GW, Beijiang PhaseII 1GW, Meizhouwan Phase II 1GW).

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