Life after tariff adjustment
􀂄 On-grid tariff adjustment impact net negative to IPPs
NDRC announced in the afternoon of November 19, 2009 that, effective on
November 20, 2009, non-residential retail electricity tariff is raised on average by
RMB0.028/kWh, or about 5% from the previous level. Residential electricity tariff
is not adjusted this time. While we expect this is expected by the market, we
believe the market will still read the move to be negative to PRC IPPs.
IPP on-grid tariff adjustments to be announced soon
On-grid tariff adjustments are expected to go up in central and west China while
those in east and south would go down. We will revise our IPP earnings estimates
as soon as new on-grid tariffs are released, which will likely be in the next couple
of days according to HNP and Datang.
Still bullish on coal; Bearish on IPPs
As we remain bullish on thermal coal price outlook, we maintain our Underweight
stance on PRC IPPs. At our Nov China Investment Summit, CRP said it expects
5% contract coal price increase in 2010 YoY. Datang said it expects 4Q09 coal
price to rise above 3Q09 level with further coal price increase in 2010. China spot
coal price has risen by 16% in the last 4 weeks compared to a month ago.
Cost pressure ahead; further tariff adjustment unlikely
Perceptions of interest rate rise may also be a drag on share price performance.
A 1% change in interest rate changes our 2010 earnings estimates for HNP by
9.5%, DIP by 15% and CRP by 2%.
Improved plant utilization rate won’t offset coal price hike
We assume +4.8% power consumption growth in 2009 vs 2008, which implies
15.9% power consumption growth in 4Q09 vs 4Q08. If power demand growth
rises faster than expected and draws a faster coal price increase, we expect the
net impact to be negative to IPPs bottom lines.