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China's Huaneng sees power industry entering 'low-speed growth' stage

Liu Guoyue, center, executive director and president at Huaneng Power International, says China's energy market has entered a stage of "low-speed growth."

HONG KONG -- China's Huaneng Power International said Thursday it would cut back on its power production as the world's second largest economy is still plagued by a glut in its energy supplies.

     Huaneng, the Hong Kong-listed arm of state-owned power generator China Huaneng Group, expects that sluggish demand will cause its domestic power generation this year to fall 1.7% to 315 billion kilowatt-hours -- its lowest target since 2011.

     Liu Guoyue, the group's executive director and president, said China's power market has entered a stage of "low-speed growth" of 1-2% this year, but stressed that China's electricity consumption is yet to peak. "There is still much room for development when it comes to electricity consumption per capita," he told reporters on Thursday.

     Liu's remarks came as Huaneng posted better-than-expected earnings for the 12 months to December 2015, boosted by falling coal prices which have offset the impact of lower electricity tariffs in China.

     Full-year net profits climbed 27% to 13.65 billion yuan ($2.1 billion), partially lifted by a nearly 14% fall in the cost per ton of coal. Revenue was up 2.8% on the year to 128.9 billion yuan. The company is recommending a cash dividend of 0.47 yuan per share, up from 0.38 yuan in 2014.

     Its Singapore unit, Tuas Power, reported a net loss of 59 million yuan, due to an ongoing electricity oversupply putting a squeeze on profit margins.

     In December, the Chinese government announced its second cut in a year to the price of on-grid electricity -- by 0.03 yuan per kwh -- in a move that tracks the downward trend in fuel prices.

     Huaneng expects fuel costs, which account for nearly 60% of the group's operating expenses, to fall by 10% this year. Asked if the group would consider a bigger shift to cleaner natural gas from coal, Liu said that would require more government subsidies owing to a "substantial price difference" between the two types of fuel.

     "We are overweight due to the company's strong power generation capacity and falling coal price," wrote JP Morgan analyst Boris Kan in a note on Mar. 22. The investment bank set a price target for the year of HK$7.5 per share, citing the industry's relatively "predictable cash flows."

     Huaneng's shares closed nearly 1% higher at HK$6.80 on Thursday, underperforming a 1.3% rise in the benchmark Hang Seng Index.

     Others are less optimistic about the industry's overall prospects. Power suppliers will face more headwinds as China seeks to introduce more competition into the sector that will ultimately lower electricity tariffs for its factories.

     Analysts at Singapore's United Overseas Bank Kay Hian believe that earnings of China's power suppliers peaked last year amid ongoing market liberalization and a "limited potential" for coal prices to fall further.

     Rival China Power International Development, the listed arm of one of China's major power generators, saw its full-year net profits jump 50% to 4.15 billion yuan last year on lower fuel costs. China Resources Power, the power asset of conglomerate China Resources, posted an 8.8% rise in net profit to HK$10.03 billion ($1.29 billion).

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