Datang RE has slowest capacity growth among peers: Nomura

Net loss in 1H14 was expected too.

China Datang Renewable Power (Datang RE) reported 1H14 results, with a net loss of CNY14mn, vs a net profit of CNY231mn in 1H13—which apparently is unsurprising, added to the maintaining of a negative view on the company’s stock.

According to a research note from Nomura, the loss-making position is not a surprise to the market, given the company had issued a profit warning earlier.

Further, Nomura noted that it maintains its negative view on the stock, given our view that the company has: the slowest capacity growth among its peers; the weakest fundamentals with the highest curtailment ratio among peers; and a heavy financial burden which is likely to constrain its capacity growth potential, and implies potential dilution risk from new equity financing exercises.

Here’s more from Nomura:

Stripping out one-off items, such as FX adjustments and provision for impairment, recurring net profit was CNY13mn in 1H14, down by a substantial 95% y-y.

The loss making should not come as a surprise for the market given the earlier profit warning.

We reiterate Reduce on the stock, with our TP of HKD1.0 representing downside potential of 24% from the current level.

Key numbers in 1H14 results:

Revenue: 1H14 revenue dropped 6.8% y-y to CNY2,575mn, mainly due to a 9.1% decline in wind power output which was slightly offset by a 35% increase in solar power output (but at a low base).

Other net income: With the VAT refund increase in 1H14, the company saw CNY65mn in “other” net income, vs a CNY6mn loss in 1H13.

Operating expenses: Operating expenses rose by 8.9% y-y to CNY1,529mn, driven by an 11.7% increase in D&A charges amid increasing capacities. With the cost control measure, other expenses showed a modest drop of 4.6% y-y. We were surprised to see repair & maintenance expenses down by a significant 63.7% y-y to CNY17mn.

Income tax: Given that income tax cannot be charged on a consolidated basis at the holding level (ie, no offsetting between subsidiaries), income tax was larger than profit before tax for 1H14.

Net gearing: With increasing capex needs during 1H14 (CNY1.2bn) and the poor operating results, net gearing at end-June 2014 climbed further to 423%, from 411% at end-2013.

The company will host its interim result analysts’ briefing at 4PM (HKT) on 26 August 2014.