China Power International beats estimates with net income of RMB2.76 billion

Thanks partly to unexpectedly better associate contribution.

China Power International (CPI) reported a net income of RMB2.76 billion, which was 7% ahead of Barclays' estimates.

According to a research note from Barclays, a better-than-expected contribution from associates helped the company to report marginally better net income.

Meanwhile, operating profit for the year at RMB5.74 billion was 1% lower than Barclays' estimate.

Net debt at RMB43.1 billion was broadly in line with Barclays' estimate of RMB42.7 billion and flat y/y. Further, associate income increased 47% y/y to RMB640 million in 2014, driven by commissioning of a 1000MW coal-fired power plant in Changshu.

Here's more from Barclays:

Lower utilization hours, offset by lower costs: CPI reported utilization hours of 4,431 and 3,734 for thermal and hydro power operations, respectively, 5.5% and 4.7% lower than our estimates for full year 2014.

However, this was offset by a better-than-expected decline in fuel costs for thermal power. Fuel cost in 2014 was RMBc18.9/kWh (compared to our estimate of RMBc19.3/kWh) and declined 16.4% y/y in 2014.

Valuation keeps us Equal Weight despite attractive business mix: CPI has a balanced business model with a greater proportion of clean power (which reduces the risk of a tariff cut, unlike IPPs) and a decent growth profile.

The latest merger of CPI's parent company with a major nuclear technology company in China in 2015 has further raised hopes of nuclear projects being won and then injected into the listco in the medium term. 

However, the valuation premium of 15-20% over peers implies that the stock is already pricing in a lot of optimism from these two potential positives, in our view.