Huaneng Power's RMB10.8b profit disappoints analysts

Impairment loss was cited as the driver.

It has been noted that Huaneng Power International's headline EPS of RMB0.76 was 16% lower than Barclays' estimates with impairment loss of RMB2.1 billion being the key driver for the headline miss.

According to a research note from Barclays, underlying operating profit, however, was in line with its estimate.

Further, stronger-than-expected cash flow is the key highlight of the release; as a result 4Q14 operating cash flows are the highest they've been in the last five quarters despite the tariff cut in September 2014.

Net debt at RMB142 billion was lower than our estimate and has declined on y/y basis. Dividend at RMB0.38/share, however, was lower than Barclays' estimate due to weaker headline earnings, although the payout ratio remained at 50%.

Power generation guidance for 2015 is in line with Barclays' estimates, which should allay fears of a sharper decline in utilization hours for Huaneng, in Barclays' view.

Here's more from Barclays:

Strong underlying despite headline miss: Net income of RMB10.8 billion was lower than our estimate of RMB12.7 billion. Huaneng booked an impairment charge of RMB2.1 billion (RMB0.64bn on goodwill and RMB1.4bn on port and hydro assets), which was the key driver for the lower-than-expected headline earnings.

Operating profit in 4Q14 at RMB9.3 billion was in line with our estimates and was lower only 3% q/q. This implies a better-than-expected decline in fuel costs, given that 4Q had full impact from the tariff cut announced in September 2014.

Cash flow story continuing to remain strong: Implied operating cash flow in 4Q14 was RMB9.3 billion, which we calculate to be the highest for last five quarters.

Free cash flow of RMB12.9 billion was also ahead of our estimates at RMB8.3 billion and implies a FCF yield of 12.5% (third consecutive year of double-digit FCF yield for Huaneng). Net debt is continuing to decline since 2011 with a small decline of 3% y/y in 2014.

2015 guidance implies power generation growth in low teens: Huaneng expects to generate 345 billion kWh in 2015, which implies 13% y/y growth from its generation in 2014. This is in contrast to a 7.3% y/y decline seen in 2014 on the back of slower utilization hours.

Moreover, the company expects its controlled capacity to exceed 80GW in 2015, thus keeping the growth pipeline strong. Capex guidance for 2015 is RMB24.1 billion, of which 25% will be spent on technological upgrades (mainly environmental upgrade capex) and another 25% will be spent on clean power.