Sichuan Chuantou Energy:9M16net profit -12.6%YoY on low prices for offplan electricity

9M16 net profit -12.6% YoY.

    The company announced earnings for 9M16: 9M16 net profit fell 12.6% to Rmb2.8bnon low prices for off-plan electricity and lower VAT rebates, equivalent to 76% of ourfull-year estimate and in line with our expectation. This included Q3 net profit ofRmb1.4bn, down 15.8% YoY.

    Strong growth in coal-fired power but hydropower weakened.

    According to the company's previously released 9M16 operating data, powergeneration at Chuantou-controlled power plans fell 4.6% YoY to 2.7bn kWh. Brokendown, coal-fired power generation rose 19% YoY to 420m kWh on robust growth indirect sales, while hydropower generation fell 7.9% YoY to 2.28bn kWh due to weakon-plan electricity sales amid a power demand slowdown in Sichuan province. Inaddition, the company's average on-grid tariff in 9M16 fell to 6.4% YoY toRmb0.221/kWh due to low prices for off-plan hydropower and a special MOF levy.

    YRH: Solid growth in power generation despite big declines in on-grid tariffs.

    According to operational data for Yalong River Hydropower (YRH), in which Chuantouholds a stake, power generation of YRH rose 4.8% YoY to 53.05bn kWh in 9M16,including 23.76bn kWh in Q3, up 1.7% YoY. YRH's average on-grid tariff fell 9.04% toRmb0.028/kWh in 9M16 due to low prices for off-plan electricity.

    Valuation: Rmb9.1 price target, Neutral rating.

    We maintain our Neutral rating and SOTP-based price target of Rmb9.1.