Headline earnings for Datang Renewables make a turn-around in 1H15

Magnitude of profit is higher than estimates.

Headline earnings for Datang Renewables turned positive in 1H'15 compared to a loss in 2014 and was in line with its positive profit alert issued earlier in the month.

According to a research note from Barclays, there has been a turnaround to headline profit from a previous loss.

Headline net income of RMB199 million was almost double our estimate of RMB99 million. This was driven by lower depreciation and lower finance costs, while underlying EBITDA was 1% lower than our estimates.

Recovery in earnings was reflected in cash flow, as operating cash flow in 1H'15 at RMB3.4 billion was ahead of our estimate of RMB2.1 billion.

Here's more from Barclays:

Profit in 1H'15 makes the second straight quarter of profit and the magnitude of profit was higher than our estimates. However, the implied underlying EBITDA for 2Q'15 was 1% lower than our estimates.

Operating metrics such as utilization hours and capacity additions have been in general in line with our estimates. Cash flows in 1H'15 have also been strong and resulted in lower than expected net debt.

While the capacity addition in 2015 are likely to remain strong given the deadline of lower tariffs beginning next year, we believe key for China renewable companies' investment case is growth from 2016 onwards.

Peers like Longyuan and Huaneng Renewables have flagged slower growth from next year onwards, and Datang Renewables will lag the two, in our view. Balance sheet de-gearing in a slower growth environment is another challenge.