Falling Coal Prices May Fuel Huaneng's Earnings

Gene Linn  |

Call it a power surge. After China Resources Power (CRPJY) announced better-than-expected results late Monday, the stock soared 8.1% on Tuesday lifting the whole sector higher.

One of the big gainers was Huaneng Power (HRELY), which jumped 5.3% to make it the best performer on Hong Kong’s index of Chinese companies, the HSCEI.

And Huaneng has more gains in store this year, according to a research piece by Guoco Capital. The power company’s fat 2012 net profit rise of 367% announced Tuesday was in line with market expectations after a tariff hike in 2011 and a drop in 2012 coal prices, the securities firm said.

What really makes Huaneng attractive for the future, Guoco said, was that investors’ consensus is coal prices will dip further in 2013. China Resources Powr predicted a drop of 5%. Coal inventory at power plants, reflecting a growth in supplies compared to demand, increased from 19 days to 23 days in the last month, compared to an historical average of 16 days.

Guoco added: “Among China IPPs, Huaneng Power’s net profit is most sensitive to change in coal price.” Partly by factoring in a 5% unit fuel cost saving, Guoco figures Huaneng is trading at 10.3X its PE multiple for 2013. The securities firm upgraded Huaneng to a “Buy” with a six-month target price equal to 13X 2013 PE. End

Hong Kong Blue Chips: -31, -0.1%, to 22,226, 3-21-13, Hang Seng Index

Chinese Stocks in Hong Kong: -34, -0.3%, to 10,944, 3-21-13, HSCE Index

Shanghai Stocks: +7, +0.3%, to 2,324, 3-21-13, Shanghai Composite Index.

Chinese Stocks in the U.S.: +7.0, 370.1, 3-20-13, Bank of New York Mellon, ADR Index-China

Insight: Hong Kong opened higher after China's preliminary March PMI figure reflected an increase in manufacturing, but stocks could not hold gains in weak turnover. Investors focused on corporate results: Auto-maker Geely (GELYY) rose 1.2% on better-than-expected earnings. KGI Research

Quotable: "Short-selling turnover for the market advanced 34.7% to HK$9.2bn and its short-selling ratio added 2.09ppts to 12.2%." Core Pacific Yamaichi. 3-21-13

Brokerages and analysts cited here have disclaimers on their websites emphasizing their statements are for information only. They do not endorse my blog, and I don’t endorse them.

For a list of Chinese companies sold in the U.S. and information on each company go to http://www.adrbnymellon.com/dr_country_profile.jsp?country=CN

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