Datang Power(991 HK)：Non-electric businesses remain challenging

May 5, 2014 Monday Company Report China Merchants Securities (Hong Kong) Hong Kong Equity Research To access our research reports on the Bloomberg terminal, type CMHK <GO> 1 Datang Power(991 HK) Non-electric businesses remain challenging ■ Non-electric businesses in danger of missing expectations ■ Electric business continues to benefit from lower fuel costs ■ 1Q14 earnings dragged down by non-electric businesses Downgrade to NEUTRAL In 2014, with our expectation of power generation growth of 8% YoY and coal price decline of 4% YoY, we believe the electric business of Datang will continue to outperform and drive up net profit by 18% YoY. However, the continuously lower-than-expected performance of non-electric businesses would be difficult to see improvement in the short-term. Therefore, we lowered the estimations of revenue and investment income by 5% and 72% respectively, revised downwards 2014-2015E EPS by 22% and 30% to RMB0.33 and 0.39 and estimated its 2016E EPS to be RMB0.48, basically in line with consensus. Based on its historical average of 8x2014E P/E, we revised downwards its 12-month TP by 25% to HK$3.3 and downgraded to NEUTRAL. Non-electric businesses remain challenging In 1Q14, non-electric businesses recorded RMB600mn loss before tax in total, mainly because bothDuolun and Keqiwent throughequipment maintenance, whereas coal projects recording loss of RMB80mn due to weak demand. The guidance for Duolun's polypropylene production is 300,000tons while for Keqi is 1bn cubic meters of gas production in 2014. We believe the stability of equipment is a potential risk. Positive outlook on electric businesses The power generation target of the company is 193.5bn KWh, up 0.85% YoY. We believe the target is achievable as we expect its installed capacity to grow by 2% in 2014. We expect its electric businesses to benefit from the 4% coal price drop in 2014. 1Q14 earnings missing expectation The company achieved revenue of RMB17.5, down 4.89% YoY; net profit attributable to shareholders was RMB942.5mn, up 0.49% YoY; EPS was RMB0.071, which is 20% of consensus forecast for the whole year. Its net margin of 7.8% was lower than Huaneng's 13.9% and Huadian's 8.9%; ROE of 2.1% was lower than Huaneng’s 5.8% and Huadian's 5.1%. The competiveness of Datang is dragged down by its non-electric businesses. Financials RMB mn 2012 2013 2014E 2015E 2016E Revenue 77,598 75,227 83,195 87,459 91,650 Growth (%) 7% -3% 11% 5% 5% Net profit 6,225 5,743 6,798 7,960 8,855 Growth (%) 105% -8% 18% 17% 11% EPS (RMB) 0.31 0.27 0.33 0.39 0.43 DPS (RMB) 0.10 0.12 0.11 0.11 0.11 P/E (x) 7.7 8.8 7.1 6.0 5.4 P/B (x) 0.7 0.7 0.7 0.6 0.6 ROE (%) 9.8% 8.0% 9.4% 10.2% 10.4% Source: Company data, CMS(HK) estimates(based on the closing price on May.2) Vera LIANG Liangsheng DENG +86-755-82940762 liangwei@cmschina.com.cn +86-755-83295357 dengls@cmschina.com.cn WHAT’S NEW Rating, TP and estimate revised downwards NEUTRAL Previous BUY Price HK$2.92 12-month Target Price (Potential upside) HK$3.3 (+13%) Previous HK$4.4 Price Performance Source: bigdata % 1m 6m 12m 991 HK 2.1 (17.7) (11.4) HSI (1.2) (4.3) (1.8) Industry Electric Power Hang Seng Index 22261 HSCEI 9802 Key Data 52-week range (HK$) 2.75-3.96 Market cap (HK$ mn) 53176.7 Avg. daily volume 1425.84 BVPS (HK$) 4.2206 Shareholdings Structure China Datang Group 34.71% Tianjin Jinneng Investment Company 9.74% Hebei Construction&Investment 9.63% No. of shares outstanding (mn) 3315.7 Free float 80.4% Related Research 1. Power plants operated in scale; Coal-to-gas price set. 2013.12.19 2. Positive outlook on clean energy & non-electric businesses 2013.11.1 3. Strong Power Business + Progressing Coal-Gas Projects 2013.8.28 -30-20-1001020May-13Aug-13Dec-13Apr-14(%)DATANG POWERHSI Index 2014 年 5 月 5 日(星期一) 公司报告 招商证券（香港）有限公司 彭博终端报告下载: CMHK <GO> 2 大唐发电(991 HK) 非电业务面临风险 ■ 非电业务面临再度不达预期的风险 ■ 电力业务继续受益于燃料成本缩减 ■ 2014年一季度业绩受非电业务拖累 下调评级至“中性” 2014年，在发电量增长8%及煤价下跌4%的预期下，我们认为公司电力业务盈利将继续录得增长，同比拉升净利润18%。然而其非电业务的持续性不达预期将难以在短期出现扭转，因此我们分别下调营业收入及投资收益5%及72%，下调2014-2015年每股盈利22%及30%至0.33及0.39元，预计2016年每股盈利0.48元，基本与市场预期一致。根据其历史平均8x2014E P/E的相对估值，下调12个月目标价25%至3.3港元，下调评级至“中性”。 非电业务尚存风险 公司一季度非电业务录得6亿税前亏损，主要由于煤化工及煤制气项目均经历机组检修而影响产量，同时煤矿业务盈利能力受煤炭市场疲软影响，录得8,000万元亏损。多伦项目全年聚丙烯产量目标为30万吨，克旗全年天然气产量目标为10亿立方米，我们认为设备重新投运后的稳定性有待观察。 发电业务保持乐观 公司目前拥有合计装机容量4,733兆瓦的项目等待核准，预计其2014年装机容量将同比增长2%。公司2014年全年发电量目标为1,935亿千瓦时，同比上升0.85%，在2014年全国用电需求缓慢增长的背景下，我们认为公司目标有望达成，预计其发电业务将受益于2014年标煤单价同比下降4%。 2014年一季度业绩低于预期 公司2014年一季度实现营业收入175亿元，同比下降4.89%；归属于股东净利润9.42亿元，同比上升0.49%；每股盈利0.0708元，达市场全年盈利预测20%。净利率为7.8%，同比上升0.2个百分点，然而低于华能国际的13.9%，以及华电国际的8.9%；净资产收益率为2.1%，同比下降0.1个百分点，低于华能国际的5.8%，以及华电国际的5.1%。可见公司目前盈利能力不具竞争优势，主要受其非电业务的拖累。 盈利预测及估值 人民币百万元 2012 2013 2014E 2015E 2016E 营业额 77,598 75,227 83,195 87,459 91,650 同比增长(%) 7% -3% 11% 5% 5% 净利润 6,225 5,743 6,798 7,960 8,855 同比增长(%) 105% -8% 18% 17% 11% 每股盈利(元) 0.