Datang Power (601991): 2018 performance is lower than expected coal price decline or may lead to profit recovery

Datang Power (601991): 2018 performance is lower than expected coal price decline or may lead to profit recovery

Performance review 2018 results exceeded expectations Datang Power announced its 2018 results: revenue increased by 11% to $ 93.4 billion.

Net profit fell 18% to 12 per year.

35 ‰, far lower than our expectation with the market (23 ‰ / 26 ‰), mainly because the fuel cost exceeded expectations.

  The company announced a dividend of 0 in 2018.

1 yuan / share, dividend payout ratio is 139% (2017: 111%).

  Development trend Fuel costs are high, and 2018 earnings are less than expected.

Datang Power’s 2018 net profit is weak, replacing 20% per year, mainly due to the 5% annual increase in unit fuel cost, which is higher than the market average.

Listed companies in the same industry (Huadian, China Resources, China Electric Power) fuel costs increased by only 2% in 2018?
3%.

  The decline in coal prices 杭州桑拿网 in 2019 is expected to help profit recovery.

Although the sensitivity is weaker than its peers, we expect a 1% drop in fuel costs will still lift 3 targets for Datang Power’s 2019 profit.

We believe that despite short-term fluctuations, considering the strengthening of coastal coal control, the release of coal production capacity and high inventory increase, power generation companies’ bargaining power (average inventory days of the six major coastal power generation groups at least + 49% year to date)Coal prices may remain on a downward trend.

  Declining capital expenditures eased pressure on financial costs.

We expect Datang Power to limit its capital expenditure to approximately 75 percent (2018: US $ 11.7 billion) in 2019, which will help the company deleverage and reduce its net debt ratio (2018:?
250%).

In addition, through the decline in borrowing costs, Datang’s financial costs may be reduced in 2019.

  Earnings forecast Considering the update of installed assumptions and the downward trend in fuel costs, we have raised our 2019 earnings forecast by 7% to RMB0.

17 yuan, while dating 2020 profit forecast RMB 0.

17 yuan.

  Estimates and recommendations Datang Power-A / -H is currently trading at 20.

3 times / 11.

0 times 2019 P / E ratio.

We maintain our Neutral and Recommended rating for Datang Power Generation-A / -H, but considering the expectation of profit recovery, we raise our target price by 15% to RMB3 based on DCF.

13 yuan / HKD 2.

37 yuan, implying 8% downside and 13% upside.

Datang Power Generation’s -A / -H target price corresponds to 18.

6 times / 12.

9 times 2019 P / E ratio.

  Risk fuel costs exceeded expectations and lending rates rose.

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