20080114-NOmura-1071 Huadian Power International

20080114-NOmura-1071 Huadian Power International

Our view
Huadian Power’s H-share has been under pressure from a delay in asset
injections, tariff cap and high coal prices amid a weak broad market. We believe the
correction goes too far, given pending asset injections, strong output growth and
attractive valuations. We reiterate our STRONG BUY but cut fair value to HK$5.60.
Anchor themes
Overcapacity and falling utilisation rates will continue to dampen sector earnings
growth until at least mid-2008F, as over-investment in new coal-fired capacity
works through the system. Huadian stands out for doubling its equity capacity in
FY06-07F, seeing it well positioned to benefit from a rebound in utilisation hours.
Environmental objectives will become a key earnings driver as regulations reward
green efforts and efficiency gains with favourable load dispatch and higher tariffs.
The recent forced closure of small coal-fired units is just the beginning.