IPP
, China

Why Huaneng Renewable's outlook is the strongest for 2015

All thanks to robust capacity addition stance.

Huaneng Renewables delivered a strong set of results with a 21% beat on EPS compared to Barclays' estimates.

According to a research note from Barclays, the upside was mainly driven by better than expected power ASPs and lower cash costs.

The capacity addition in the year has also come in line with its guidance, which Barclays believe should be well received by investors given that slippages and delays have become common with wind power operators.

Net debt was 5% lower compared to Barclays' estimates, while the company has announced a dividend of RMBc2 per share.

Strong results confirm Huaneng Renewable's position as Barclays' preferred wind power operator and its capacity addition outlook is strongest for 2015 with a guidance of 2GW, while its largest peer Longyuan is expected to add between 1.5-1.6GW on a much larger base.

Here's more from Barclays:

Stronger capacity addition with recovery in wind speed: Average utilization hours in 2014 at 1875 hours was ahead of our estimates of 1845, which implies a stronger than expected recovery in 2H'14. Capacity addition at 1.7GW in 2014 was in line with its guidance of 1.8GW and has strengthened its position as the fastest growing wind power company in our China wind power sector coverage.

Power ASP and costs are better than our estimates: We calculate that Huaneng Renewables has improved its power ASPs by 4% y/y, which we believe is a result of its attractive geographic exposure.

The company has the largest exposure to zone-IV, where wind utilization hours are relatively better and the wind power tariff has remained unaffected by the tariff cut announced by NDRC in January 2015.

Operating leverage and the larger base of power generation has resulted in a 21% y/y decline in unit cash operating costs in 2014. This is consistent with the 22% y/y cost decline achieved by the company in 1H'14.

Increase in net debt consistent with capacity growth: Capex at RMB15 billion in 2014 was consistent with its guidance and our estimates. This has resulted in a sharp increase in net debt to RMB36.4 billion compared to RMB26.6 billion in 2013.

However, the increase in net debt was 5% lower than our expectations, which we estimate was driven by better than expected operating cash flows in the year. Lower debt and capital raising in 2H'14 has strengthened its balance sheet, which we believe will support its aggressive capacity expansion plans for next three years. 

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