GD Power Alert:2016results miss,better capex discipline ahead

类别:公司研究 机构:德意志银行 研究员:Michael Tong 日期:2017-04-17

GD Power’s reported net profit in 2016 was up 8% yoy while recurring profitwas down 22% yoy. During the conference call, mgmt said it expects marketbasedvolume mix to increase with less discount offered to DPS users in 2017.

    GD Power has a smaller capex budget for 2017 partially due to the delay intwo thermal projects. We cut our earnings by 10%/8% in 2017/18E to mainlyreflect higher fuel cost and project delays. The company is trading at 15x2017E P/E. Maintain Hold with TP of Rmb3.3.

    2016 reported net profit up 8% yoy.

    GD Power reported net profit of Rmb4.7bn in 2016, up 8% yoy. Recurring netprofit (after adding back Rmb498mn impairment) dropped by 22% yoy toRmb5.2bn (8% lower than DBe) dragged by higher unit fuel cost (+7% yoy) andlower tariff (-7.5% yoy). Thermal utilization hours remained flat yoy at 4,521,better than the national average of 4,165 (-4.6% yoy) thanks to its East Chinaexposure. Hydro utilization, however, dropped 8% yoy.

    Mgmt expects higher market-based volume with less DPS discount.

    In 2016, total market-based volume accounted for 25% of total power sales, ofwhich 85% was direct power supply (DPS) to large users. Average DPSdiscount was around Rmb5cents/cm. In 2017, mgmt expects a gradualincrease of the market-based volume mix but the discount should be less as aresult of higher coal prices.

    Slower capacity addition and lower capex.

    In 2017, GD plans to install 2.76GW new capacity, of which 1.4GW is thermal(Handan and Chaoyang), 1.02GW is hydro (Houziyan and Shaping), and0.33GW is wind. Fangjiazhuang (2*1GW, originally scheduled in 2H17) is likelyto commence operations in early 2018 and Bengbu (2*660MW, originallyscheduled in 2H17) is delayed with no clear timetable. In 2016, total capex wasRmb22bn and mgmt expects it to decline in 2017.

    Other key takeaways.

    GD Power’s standard coal price edged up slightly by 1% qoq in 1Q17 toRmb565/ton. Mgmt expects coal prices to remain at around the 1Q17 levelthroughout the year. For the coal purchased in 2016, 14% is imported, 35% islong-term contract based and the remaining 51% is purchased from the spotmarket. In 2016, the loss-making projects were mainly Xuanwei (in Yunnan),Jiuquan (in Gansu) and Shizuishan (in Ningxia).

    Cut earnings by 10/8% in 2017/18E and maintain Hold.

    We cut our 2017/18E earnings by 10/8% mainly to reflect higher unit fuel costand delays at the Bengbu Phase II and Fangjiazhuang power plants. In 2016,the Hydro segment contributed c.20% pre-tax profit and we expect the ratio toincrease to 25% in 2017E. Our TP of Rmb3.3 (from Rmb3.4) is derived fromDCF with WACC of 8.2% and zero TGR.

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