Power demand growth in China falls 1.5% y-y in August

The first demand retreat since May 2009.

National power demand in China fell 1.5% y-y in Aug (8M14: +4.0%) down from 3.0% y-y growth in July (7M14: +4.9%).

According to a research note from Nomura, this first demand retreat since May 2009 was largely due to a drop in industrial consumption amid a slowdown of domestic economic growth, with industrial output growth down 2.1pp m-m to 6.9%.

Meanwhile, national power output fell 2.2% y-y in Aug (8M14: +4.4%) vs. +3.3% y-y in July (7M14: +5.5%). Thanks to the persistent ample rainfall since July, hydropower output surged 37.2% y-y, while thermal power output, squeezed by hydropower, recorded an 11.3% y-y drop.

Here's more from Nomura:

Wind power output remained weak, recording an 8.3% y-y drop vs. up 23.2% in July due to slow wind speeds. The largest gains in power output were recorded in Yunnan, Sichuan, Xinjiang, Hainan and Guizhou provinces, where Huadian has the highest exposure.

National average plant utilisation fell 4.9% y-y in 8M14. New power capacity was at 48.1GW in 8M14, implying 3.9% YTD growth or annualised new capacity of 72.3GW in 2014.

As generally more capacity is slated for completion in 2H, we maintain our forecast of 95GW net additions for 2014F.

According to NDRC’s notice, the average national on-grid tariff cut was CNY9.3/MWh (~2%), effective from 1 September 2014. Overall, Datang and Huadian are less impacted, given their plants’ location exposure.

Within the China IPP universe, we continue to prefer Datang (Buy), as we believe that the current price is yet to fully factor in the re-rating potential after the disposal of its non-power assets. We also remain positive on:

1) CPID given the rebound in hydropower generation in 2H14, strong capacity growth plans and decent dividend yield; and

2) Huadian given its high dividend yield.