Datang power generation slides 8% to 46.2bn kWh in 3Q15

Weak coal price partially offsets power generation.

It has been reported that Datang International Power's power generation declined by 8% to 46.2bn kWh in 3Q15.

According to a research note from Jefferies, this is mainly due to the continued decline in thermal power utilization hours.

Further, 9M15 power generation was down by 6% YoY to 133.2bn kWh with thermal power declining by 7% YoY partially offset by 5% and 11% increase in hydro power and wind/solar power.

Here's more from Jefferies:

Revenue declined by 11% YoY to Rmb15.5bn in 3Q15, attributable to decline in power sales volume and reduction in power tariff.

However, on the back of continued weakness in coal prices, operating cost only declined by 8%. As a result, operating margin contracted by ~300bps and operating profit went down by 13% YoY to Rmb3.4bn.

Increase in non-operating income. The company recognized Rmb646m (vs. Rmb163m in 3Q14) in non-operating income mainly due to the increase in amortization of deferred gains, partially offset the decline in operating profit.

Buy on Upside Optionality. We expect Datang's ROE will continue to underperform its peers due to the coal chemical drag and a slower capacity growth. Due to the recent drop in oil price, there could be a further delay to its coal chemical divestiture.

We, however, think the negatives have been fully priced in at a tough valuation multiple of 0.6x PB. Once the divestiture happens, the company ROE & valuation will significantly improve, in our view. The company has a dividend yield of ~6.2%.

*Photo by "Yangshupu Power Plant at sunset" by 我爱波音哈 - Own work. Licensed under CC BY-SA 3.0 via Wikimedia Commons