China Datang Renewable Power suffered CNY14m net loss in 1H13

But it was not a surprise.

China Datang Renewable Power (Datang) RE reported 1H14 results, with a net loss of CNY14mn, vs a net profit of CNY231mn in 1H13.

According to a research note from Nomura, the loss-making position is not a surprise to the market, given the company had issued a profit warning earlier.

Stripping out one-off items, such as FX adjustments and provision for impairment, recurring net profit was CNY13mn in 1H14, down by a substantial 95% y-y.

Here’s more from Nomura:

The loss making should not come as a surprise for the market given the earlier profit warning.

We maintain our negative view on the stock, given our view that the company has:

1) the slowest capacity growth among its peers;

2) the weakest fundamentals with the highest curtailment ratio among peers; and

3) a heavy financial burden which is likely to constrain its capacity growth potential, and implies potential dilution risk from new equity financing exercises.

We reiterate Reduce on the stock, with our TP of HKD1.0 representing downside potential of 24% from the current level.

Key numbers in 1H14 results:

Revenue: 1H14 revenue dropped 6.8% y-y to CNY2,575mn, mainly due to a 9.1% decline in wind power output which was slightly offset by a 35% increase in solar power output (but at a low base).

Other net income: With the VAT refund increase in 1H14, the company saw CNY65mn in “other” net income, vs a CNY6mn loss in 1H13.

Operating expenses: Operating expenses rose by 8.9% y-y to CNY1,529mn, driven by an 11.7% increase in D&A charges amid increasing capacities. With the cost control measure, other expenses showed a modest drop of 4.6% y-y. We were surprised to see repair & maintenance expenses down by a significant 63.7% y-y to CNY17mn.

Income tax: Given that income tax cannot be charged on a consolidated basis at the holding level (ie, no offsetting between subsidiaries), income tax was larger than profit before tax for 1H14.

Net gearing: With increasing capex needs during 1H14 (CNY1.2bn) and the poor operating results, net gearing at end-June 2014 climbed further to 423%, from 411% at end-2013.

The company will host its interim result analysts’ briefing at 4PM (HKT) on 26 August 2014.