Huaneng Power's operating revenue drops 14.7% y-y

Blame it on the on-grid tariff cut.

Huaneng Power International's operating revenue dropped 14.7% y-y, mainly due to the on-grid tariff cut effective in September 2013 and 2014, as well as the 15.6% y-y decline in the 3Q14 domestic net power generation. According to a research note from Nomura, per the company, the power generation slowdown was partly due to the economic slowdown in China and the commencement of several UHV lines transmitting power from western to eastern regions.

Further, other reasons were the commissioning of hydropower units in Yunnan and nuclear units in Liaoning and Fujian, and a cooler summer in 2014.

Here's more from Nomura:

Operating costs also showed a drop of 14.5% y-y, due to weak coal prices in 3Q14. Overall, this reduced the company’s 9M14 unit fuel cost by 6.3% y-y with 3Q14 the standard coal price drop of 4.5% q-q and 11.2% y-y).

We believe the company’s 2014F guidance of a 3% unit fuel cost drop y-y is conservative given that the 9M14 unit fuel cost has already decreased 6.1% vs. 2013’s average. Currently in our model, we assume 4.3% y-y drop in the 2014F unit fuel cost.

Despite the 1.0pp increase in Tuas Power’s Singapore market share in 9M14, its profitability has been struggling at breakeven, with loss after tax of CNY9mn in 3Q14 (9M14 profit after tax of CNY19mn) due to the sharp margin shrink amid fierce competition.

Financial expenses dropped 1.7% y-y due in part to a 1.2% decrease in total debt (net gearing also dropped from 213% by end-2013 to 195% as at end-September 2014). According to management, the company’s effective interest rate remained relatively flat despite the tightening monetary policy.

Investment income (including the share of results of associates and JCEs) increased 121.2% y-y to CNY455mn, mainly due to: 1) increasing contribution from Shenzhen Energy’s stakes; and 2) the commencement of its Nantong 2*1,000MW coal-fired project (35% owned).