[ET Net News Agency, 18 May 2018] Daiwa Research raised its target price for Huaneng
Power International (00902) to HK$5.2 from HK$4.3, and upgraded its rating to "hold" from
"underperform" due to its promising 70% dividend payout policy.
The research house is bearish on the possibility of Huaneng seeing a strong rebound in
ROE (over 8%) amid falling coal prices over 2018-20, and recognising challenges in
utilisation and discounted market-based tariffs given the oversupply in power markets.
Daiwa said Huaneng's unit fuel cost rose by 8.7% YoY in 1Q, due to a substantial rise in
coal prices during the heating season amid nationwide gas shortages. However, the research
house expects coal prices to start correcting in 2Q, allowing Huaneng to achieve its
guided 5% YoY drop in 2018 fuel cost.
Despite declining coal prices, Daiwa expects a wider discount for market-based tariffs,
starting from 2H. It expects an increase in the portion of market-based power from 30% of
its total power sales in 1Q to 40-60% in 2019-20.
Daiwa raised its 2018-19 EPS forecasts by 3-5% on the weaker coal price outlook and
one-off compensation of CNY615m from the parent company to be recognised in 2Q. (KL)