Huaneng's 1H14 profit rockets 21% to CNY6.8b

Its Singapore business was weak though.

Huaneng Power International's 1H14 net profit was CNY6,808m, up 21% YoY, whilst revenue was up only 0.8% as power-generation growth was a mild 1.5% YoY.

According to a research note from Maybank Kim Eng, Singapore business, meanwhile, was weak, with net profit down 90% YoY to CNY28m.

The 3ppt YoY margin expansion in 1H14 was mainly driven by lower fuel costs that fell 3.1% YoY, and the driver was the spot coal price’s decline of around 17% in 1H14.

In Singapore, Tuas Power’s market share dropped 0.7ppt to 21.6% mainly due to the overcapacity in the Singapore market.

Here's more from Maybank Kim Eng:

Segment profit in Singapore fell 90% YoY to CNY28m.

Weak Singaporean earnings were a reason net profit was lower than we expected.

Although Huaneng recorded a decent net profit growth in 1H14, we believe the margin has peaked.

We expect a 5% coal-fired on-grid tariff cut in 3Q14 due to the coal-tariff linkage mechanism.

On the other hand, we believe the spot coal price has already approached the cash production cost, which means potential upside from lower coal cost will be limited.

We believe margins will peak in FY14E and FY15E net profit could drop 9% YoY.

Maintain HOLD and DCF-based TP of HKD8.50.

Despite the lower-than-expected net profit, we believe it could be offset by the recent weak spot coal price (~3% decline in July).