Here's what's been dragging Datang International Power Generation's profitability

Impairment losses likely to come.

It has been noted that coal to chemical is a key drag on Datang International Power Generation Co.'s profitability.

According to a research note from Barclays, by virtue of that, the disposal of a stake in this business is a key catalyst for the stock, in Barclays' view.

In 2014 the coal to chemical business reported a loss of RMB3.4 billion before impairments (loss of RMB2.2 billion in 2013), the de-consolidation of which could boost its earnings once the disposal transaction goes trough.

Impairment of the book value of the coal to chemical business in 2014 could help to facilitate the stake sale by ironing out the issues around valuation.

Once the stake sale is done, core business profitability would make Datang's investment case more attractive on valuation compared to peers, in Barclays' view.

Here's more from Barclays:

Underlying profitability remains robust in the power business: The power generation business has reported a robust RMB12.4 billion of segment profit, up 34% y/y compared to our estimate of a 19% y/y increase. This was offset by losses in the coal and coal-to-chemical business.

Weaker headline numbers due to impairment in coal to chemical: Headline earnings were a loss of RMB1.95 billion in 4Q compared to RMB1.69 billion of positive earnings in 3Q14.

The company had pre-warned of impairment losses and hence this should not come as a surprise to the market (our note: here). While we await the detailed financials, the comparability of headline numbers appears distorted by impairments, in our view.

Dividend ahead of our expectation: Dividend of RMB0.13/share for 2014 is ahead of our estimate of RMB0.10/share. The company has increased its dividend by c8% y/y, which is the highest per share dividend since 2007 and implies a dividend yield of 4.3%.