Executive summary.....................................................................................2
Coal price downtrend to drive up margins and profits 2
Utilization hours should recover in 2H09 2
Government policies are driving efficiency gains 2
Huaneng is our top pick 2
Coal price downtrend to drive up margins and profits...............................4
We expect blended coal prices will fall 10% in 2009 4
Spot coal – flat at a low level 4
Contract coal – the deadlock is loosening 6
Coal prices will be the major driver of earnings in FY09 8
Tariffs – no change expected in 2009 9
Huaneng is our preferred stock 10
Utilization hours should recover in 2H09..................................................11
Drop in utilization is slowing and utilization may rebound in June 11
We still expect 2.4% growth in 2009 12
The industrial sector is the main downward driver 13
Utilization hours are trending down due to overcapacity 14
Industrial provinces most sensitive to fall in utilization hours 15
Huadian and CRP expected to be most sensitive, Datang and CPI least 17
Government policies are driving efficiency gains.....................................18
Winners in the drive to cleaner, more efficient power 18
Closure of small coal-fired plants – slightly positive for the five IPPs 18
Why is the closure of small units positive? 20
Tariff compensation for desulphurization policy 21
Renewable energy is also a priority 22
Company recommendations – Huaneng is our top pick...........................24
Huaneng (Buy) – sensitive to coal price, less exposed to industrial demand 24
Huadian (Buy) – most sensitive to the coal price 24
China Resources Power (Buy) – best profit margin; to be HSI constituent 24
China Power Int’l (Hold) – future in hydropower expected; less exposed to industrial demand 24
Datang Power (Reduce) – least sensitive to coal price; losing business focus? 24
Our key assumptions 24
Valuation based on discounted cash flow 25
Ratio-based valuation 26
Relative valuations 32
Interest rate cut helps lower interest expense 32
Appendix: Technical analysis perspective................................................34
Huaneng Power 34
China Resource Power 35
Datang Power 36
China Power International 37
Huadian Power 38
Company Section .........................................................................................
Huaneng Power 39
Huadian Power 44
China Resource Power 49
China Power International 54
Datang Power 59
Analyst team profile..................................................................................64