China Longyuan Power's wind power generation dropped 16% in September

Blame it on high base effect.

China Longyuan Power's net profit in September was CNY1,525m, down 22% YoY, with the net profit decline mainly due to lower coal-fired generation and high base effect of last year’s wind power utilization.

According to a research note from Maybank Kim Eng, further, Longyuan recorded wind power generation of 15,909GWh in 9M14, up 0.32% YoY.

However, the coal power business recorded a 15% drop to 7,148GWh in 9M14 mainly due to renovation and maintenance of coal-fired units.

Meanwhile, Maybank Kim Eng believes the high base effect for wind power will be smaller in 4Q14 and coal-fired generation decline from maintenance and renovation will not be recurring.

Here's more from Maybank Kim Eng:

We think the weakness of coal power business is short term as it was mainly due to the efficiency enhancement, renovation and maintenance of coal-fired generation units.

Wind power generation was down 16% in September due to the high base effect in 2013, leading to a mild increase of 0.32% in 9M14.

However, we expect the high base effect will start to cease in 4Q14. Going forward, we expect Longyuan will be re-rated on the back of structural growth supported by the UHV cable development and more strategic approvals of wind power projects.

Maintain BUY and marginally lower our DCF-based TP to HKD10 from HKD11 mainly due to downward revision of our forecast for FY14 coal-fired generation and wind power utilization hours.

We lower our FY14E net profit forecast to CNY2.8b from CNY3.3b. Longyuan looks cheap and is now trading at ~12.5x FY15E PER, the lower end of the band.

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