􀀗 IPPs’ earnings recovery should
continue as lower coal costs outweigh
decline in utilisation rate
􀀗 We see earnings upside from contract
coal negotiations as coal demand stays
weak; Huaneng could benefit the most
􀀗 Top picks still CR Power and Datang, as
earnings enhancement from vertical
integration should be seen from 2010
Stronger position in contract coal negotiations, as peak
winter demand for coal is nearly over and the large IPP
groups have formed unions to look for coal import
opportunities. We forecast Chinese contract coal prices to
stay flat versus the consensus forecast for a 5% increase.
Huaneng’s earnings could benefit most from an expected
larger improvement in the contract coal fulfilment rate.
Electricity consumption to pick up in 2Q, as we expect
most industries to resume production after de-stocking and a
bulk of the announced stimulus packages kick in after mid-
09. We forecast electricity consumption will return to flat
growth in 2Q09 and rebound to 9-10% in 2H09.
Earnings upgrades for IPPs after factoring in a sharper fall
in their average coal costs (10-16% decline in 09e), which
should more than offset utilisation decline this year. Our
2009 earnings forecasts are up to 17% above consensus. The
large difference to 2008 consensus reflects high earnings
sensitivity due to thin margins (results will be out between
30 March and 9 April).
Our top picks remain CR Power and Datang. We believe
these IPPs’ share prices do not yet reflect the substantial
earnings enhancement and lower coal prices that we expect
after vertical integration takes effect in 2010.

Recovery on track but not fully
priced in 5
Coal prices under pressure 5
Power consumption to pick up 6
Tariff hike not likely in 09 8
Earnings to improve further 8
Upward earnings revision 8
Investment strategy 10
Sector risks 10
Company profiles 13
CR Power (836) 14
Datang (991, 601991) 18
Huaneng (902, 600011) 21
China Power (2380) 24
Huadian (1071, 600021) 27
Appendix 30
PE band charts 30
PB band charts 31
Yield band charts 32
Winners and losers 33
Disclosure appendix 37
Disclaimer 43
Contents