Power "October Power Consumption Shrank 2.7% YoY"
Pls see attached the full PDF research report, below is a highlight:
Events:
The China Electricity Council (CEC) reported that national power consumption over January~October was up 8.3% YoY to 2.8969tn kWh in 2008. However, October power consumption shrank 2.7% YoY to 269.9bn kWh, the first monthly YoY decline since February 2002.
Our comments:
Decline in October power consumption due largely to slower consumption growth by heavy industries. October national power consumption fell 2.7% YoY to 269.9bn kWh. Power consumption by secondary industries (73% of national power consumption) contracted 7% YoY in the month, the key factor bringing total national power consumption down. Heavy industries consumed 12% less power YoY, sending their proportion in the national power consumption below 60% for the first time, to 55%. Light industry power consumption growth was largely unchanged: January~October growth held steady at 4% and October consumption stayed roughly flat with the same period last year. Primary industries (3% of national power consumption) consumed 5% more power in October compared with a year ago, while tertiary (11% of national power consumption) consumed 8% more, 4ppt slower than the September growth. Power consumption by households (13% of national power consumption) rose 15% YoY in October, 2ppt faster than the September level.
Power generation expected to hold steady long term. Short term, the broad-based shutdowns in energy-intensive sectors reduced industrial power consumption to a large extent, resulting in a YoY decline in October power consumption. Assuming power consumption holds steady YoY over November~December, national consumption would grow at a lower pace of 7% in 2008 and the annual utilization hours would decrease around 5% to 4,760. We believe the ongoing broad-based shutdown across a large number of industries is only a temporary phenomenon and power generation growth should gradually stabilize at a higher level in the long run. How long this process will take depends mainly on the restoration of industrial production capacity and industrial power consumption. Meanwhile, we expect utilization hours to slip only 5% in 2009 despite an estimated slower power demand growth (5~6%), because the installed capacity growth will also decline sharply to 6~7%.
Bottom line implications for thermal power producers: more positive than negative.
Gross profits of thermal power producers = unit gross profit × installed capacity × utilization hours
Thermal power producers are expected to post higher gross profits in 2009, as the boost to their unit gross profit brought by on-grid power tariff hikes and coal price declines will likely outstrip the drop in utilization hours. Making a simple calculation: assuming an unchanged power tariff and a zero increase in overall fuel cost in 2009, the unit profit of thermal power producers would grow 30% over 2008; even assuming a 5% decline in utilization hours, the 2009 unit profit growth would still reach 24% (= (1+30%) × 1.0 × (1 – 5%) – 1). The slower power consumption growth will mean lower demand for thermal coal and then weigh on steam coal prices, giving a further impetus to the bottom line growth of thermal power producers.
Investment suggestions. Thermal power producers are seeing profitability improve, but profitability in 2009 is unlikely to return to the 2007 level due to the still insufficient compensation for electricity and the lower unit utilization hours. The A-share IPPs are now trading at 2.2x P/B on average, having little advantage from the valuation perspective. Some H-share IPPs are trading at as low as 0.5x P/B, offering value for long-term investment. Investors should keep an eye on industry leaders (like Guodian Power and SDIC Huajing Power) and stocks with relative valuation advantages (e.g. A-share Jionto Energy and H-share Huadian).
 ZO1cvMGY.zip (132.41 KB)
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发表于 2008-11-18 09:57
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