Huaneng Power International's power generation ballooned 16%

It pushed profit to unexpected growth.

Huaneng Power International reported a strong set of numbers with an EPS of RMB0.35/share, 21% ahead of Barclays' estimates.

According to a research note from Barclays, better than expected power generation coupled with lower costs in the quarter were the key drivers of the beat.

Stronger than expected earnings are also reflected in a 23% q/q increase in operating cash flow, 31% ahead of Barclays' estimates.

This strong performance comes with a background of sequential decline in power generation for most of its peers.

While Barclays sees the lower costs as a positive read across for the sector, Huaneng will likely benefit from potentially higher absolute generation due to asset acquisition from the parent company in 2014.

Here's more from Barclays:

Strong beat on headline earnings: Revenues were 5% ahead of our estimates due to stronger than expected power generation in the quarter. Together with lower costs, operating profit at RMB9.34 billion is 11% ahead of our estimates for 1Q15.

However, beat on EPS was 21%, which was enhanced by a lower than expected tax rate and higher contribution from equity income from associates and JVs in the quarter.

Power generation growing y/y while peers are seeing decline: Power generation in the quarter at 82.5bn kWh increased 16% q/q and was 6% ahead of our estimates.

While the company has not disclosed its utilization hours in the release, we believe that decline in utilization hours was lower than we have factored in our estimates.

Nevertheless, inorganic increase in capacity towards the end of 2014 is likely to help Huaneng Power to maintain power generation in 2015 ahead of its peers in our view, even in a scenario where y/y growth rate in China were to remain muted.

Strong cash flow strengthens the yield story: Huaneng reported an operating cash flow of RMB11.4 billion. This is the highest ever quarterly cash flow reported by the company and is 31% ahead of our estimates.

Importantly, free cash flow in the quarter at RMB5.5 billion was also ahead of our estimates. Net debt at RMB144.9 billion was broadly flat compared to our expectation of RMB143.4 billion.

The company made a payment of RMB6.5 billion in the quarter towards acquisition of power assets from its parent company, completed in 2014.