China IPPs' profit growth momentum will come to a halt by end-2015

It has been a good 3 years of rocketing earnings.

According to UOB Kay Hian, the strong and continued earnings recovery trend in the IPP industry since 2012 could come to an end in 2015 due to two reasons. 

Firstly, the implementation of coal cost pass-through will stabilise earnings. "We maintain our forecast of a 2 Rmb cent/KWh tariff cut, which is likely to be effective in Apr 16. This would offset the earnings improvement from lower coal prices. Going forward, we expect the effective implementation of the mechanism to ensure earnings stability and visibility in the power industry," it said in a report.

Here's more from UOB Kay Hian:

Secondly, power demand remains weak. In the next few years, we think power demand would remain weak due to a sluggish economy. Coal-fired IPPs would see further utilisation pressure due to the squeeze from the government’s drive to promote the use of clean and renewable energy.

We maintain our forecast of a 1% demand growth each in 2015 and 2016. 

For 3Q15, we had forecasted that Huadian Power would continue to take the lead among IPPs and report the highest earnings growth of 22% yoy due to further coal cost savings. Going forward, we expect parent asset injections to serve as a major catalyst and CPI to receive its first round of asset injections in the near term.

Huadian and Huaneng are also likely to acquire their second batch of assets from their parent companies in 2H15 or 1H16.