Lower net finance costs drive Huaneng Renewables 2Q15 EPS

Operating profit was at RMB1.25bn

Huaneng Renewables' reported EPS at RMBc6.9 was 25% ahead of Barclays' estimate.

According to a research note from Barclays, the key driver of the beat was lower net finance costs in the quarter than it had expected while its operating profit was in line.

Stronger capacity additions and better utilization hours than Barclays had expected were the key drivers for the 24% q/q increase in operating profitability, which was ahead of the 4% sequential decline for its peer Longyuan in the quarter.

Huaneng has delivered c70% of Barclays' full-year EPS estimate for 2015 and, hence, remains on track to achieve Barclays' full-year estimate. Moreover, the ramping up of the accelerated capacity additions in the quarter could help the company to offset the seasonal weakness in wind speed in 3Q15.

Here’s more from Barclays:

Our forecasts imply a 42% y/y increase in earnings in 2015, and we expect the company to deliver a CAGR of 25% for earnings for 2015-17. The current P/E of 14.4x on our estimate for 2015 is at a 10% discount to Longyuan's. We retain our OW rating.

Strong headline earnings: Operating profit at RMB1.25bn was broadly in line with our estimate while EPS was 25% ahead. Finance costs at RMB575mn in the quarter were 12% lower than what we had anticipated and was the key driver for the beat on EPS. Capex in 1H15 at RMB6.96bn was 23% higher than our expectation, and elevated capitalization of interest costs drove the finance costs lower.

Accelerated capacity addition to help maintain steady growth: The company had 9.0GW of installed capacity at end-June 2015, which implies a net addition of 1.0GW in the 1H15. The run rate of net additions in 1H15 is in line to the top end of its guidance at 2.0GW for capacity additions in full-year 2015. The company has already achieved 55% of our forecast for capacity additions of 1.8GW for the full year.

Higher utilization hours to help offset seasonally weaker 3Q15: The company reported wind power utilization hours at 1,069 for 1H15, which was ahead of our estimate of 1,025. The better utilization hours than we had expect together with capacity additions running ahead of our estimate should help the company to offset any potential impact from seasonally soft 3Q15, in our view.