Datang Renewable suffers RMB150m loss for the first time

Blame it on declining utilisation hours.

It has been noted that Datang Renewable's reported loss was in line with the profit warning it issued in late January for a full-year loss.

According to a research note from Barclays, the loss of RMB150mn was driven mainly by the c.10% y/y decline in utilization hours in 2014 due to slower wind speeds.

This is the first reported loss by the company since its listing and is in contrast to the double-digit earnings increases y/y reported by its peers.

Importantly, the company reported capex of RMB5.6bn for 2014, which was materially ahead of Barclays' estimate, while its capacity addition in 2014 was less than 200MW.

The investment case for Datang faces multiple challenges with elevated gearing (double the sector average) while its capacity additions have significantly lagged those of its peers.

Unless power generation growth picks up fast in 2015, there could be funding requirements in the near term, in Barclays' view.

Here's more from Barclays:

Headline loss in line with profit warning in February: The underlying operating profit at RMB1.9bn was 5% lower than our expectation. The higher costs than we expected were the key reason for negative earnings in addition to lower power generation.

Wind power utilisation hours at 1,803 for 2014 were down 10% y/y, which was again higher than the average decline reported by its peers. Adverse geographical exposure was the key reason for higher decline in utilization hours.

Higher capex despite lowest capacity additions: Datang Renewables spent RMB5.6bn in capex in 2014, up 22% y/y. The capex appears unreasonably high in the context of 197MW of net capacity additions in 2014.
However, the company also said that it had c1GW of projects under construction at end-2014, which we estimate accounts for the bulk of the capex in 2014 and should come on stream in early 2015, in our view.

Capacity additions a key focus of analyst briefing: Datang Renewable will hold its analyst briefing on Tuesday in Hong Kong.

We expect its outlook for capacity additions to be the key focus of investors for two reasons: 1) capacity additions since 2012 have been slow with a total addition of only 400MW in 2013 and 2014 while continued weakness in growth could make the investment case even less attractive and 2) if the commissioning of projects approved until 2014 is delayed beyond the current year, these projects will have lower tariffs, putting pressure on returns on investments.