Longyuan capacity addition to pick up in 2Q15

Power generation should be better than 1Q.

China Longyuan Power Group Corp.'s reported EPS of RMB0.13 for 1Q15 was in line with Barclays' estimates and flat sequentially.

According to a research note from Barclays, power generation together with wind power capacity additions were flat q/q.

Barclays notes that capacity additions are expected to pick up in 2Q15 given the company has guided for 1GW of capacity addition in first half of the year out of its annual guidance of 1.8-2.2GW.

While a pick-up in capacity additions is a likely catalyst for sequential increase in earnings, Barclays believes the tariff cut in IPP business is likely to temper the potential increase in earnings from wind power business.

Here's more from Barclays:

Wind power growth likely to be stronger for the rest of the year: 1Q15 wind power installed capacity at 13.6GW was essentially flat compared to 13.5GW at the end of 2014.

However, the company has guided for an even split of its annual growth target of 1.8-2.2GW between the two halves of the year.

This implies that capacity growth in 2Q15 will likely be stronger, meaning power generation should see better growth than 1Q.

Tariff cut for coal IPP a likely headwind for group earnings: Coal-fired power generation was 27% of Longyuan's 1Q15 total generation.

In that context NDRC of China has announced a tariff cut of RMBc2/kWh effective from 20 April 2015. Although spot coal prices have declined, the tariff cut could temper the potentially positive impact on earnings from an expected sequential pick-up in wind power business, in our view.