Datang's power business beats expectations with 12% q/q recovery

Stronger operating cash flows have resulted.

Datang reported an in-line set of results with headline EPS 13% ahead of Barclays' estimate while operating profit was 5% lower.

According to a research note from Barclays, the key highlight from the results was the strong performance of its power business led by 12% q/q recovery in generation.

This has resulted in stronger operating cash flows for the company, leading to 7% lower net debt than expected.

Here's more from Barclays:

However, this was partially offset by larger-than-expected losses in its coal mining and coal-to-chemical business. The company has maintained its full-year guidance on generation and expects to commission 1.92GW power capacity this year.

The company did not make any comment on the progress of proposed disposal of its coal to chemical business, and there could be some progress in 2H15 given the top management reshuffle.

The disposal of stake in a key catalyst is for balance sheet de-gearing while the underlying power business is better positioned than peers. We retain our OW rating.

Power business delivers better-than-expected profit: Power generation was strong in 2Q15 with a 12% q/q recovery. In the absence of major project commissioning in 1H15, we believe the recovery was led by a combination of strong hydro and better utilization hours for thermal power. PBT in the power business increased 9% y/y and was ahead of our expectations.

Coal and coal-to-chemical continue to be drags on consolidated earnings: Both the businesses reported a loss at the PBT level and the magnitude of the loss was higher than our expectations.

The coal mining business was loss making despite the absence of any one-time write-offs. Coal-to-chemical on the other hand saw a 32% y/y increase in its loss, which was 13% higher than our expectation.

Project approvals are healthy: Datang had received 4.9GW of power project approvals until July 2015. The latest approvals account for c12% of its consolidated installed capacity and should help to strengthen the growth profile of its power business in the next 2-3 years.

There were not many projects commissioned in 1H15, and we expect it to accelerate towards year-end with 1.92GW of capacity scheduled for commissioning, mainly in renewable energy.