Second-half earnings at Huaneng Power International Inc, China's largest listed electricity generator, dimmed 16 percent as higher fuel costs squeezed profit margins.
The utility earned 3.28 billion yuan (US$466 million) in the second half last year, based on calculations from its full-year results, lower than an average forecast of 3.6 billion yuan in a Reuters analyst poll.
For the full 2007, Huaneng earned 6.16 billion yuan, up 1.5 percent. Sales rose 12.3 percent to 49.8 billion yuan on the back of a 13.2-percent increase in power generation. Under domestic accounting standards, Huaneng's 2007 earnings rose 1.24 percent to six billion yuan, or 0.5 yuan per share.
Rising coal costs are eroding margins in Chinese utilities which cannot freely pass on the fuel costs to customers under government-imposed power tariffs. Four-fifths of China's electricity is produced from coal burning.
Huaneng said its fuel cost per unit of output jumped a larger-than-expected 10 percent in 2007. The firm said it aims to contain the rise to 18 percent this year.
"It's a bit disappointing as we had expected 0.52 yuan per share," said Yu Hai, a Shenyin & Wanguo Securities analyst. "A possible tariff rise in the second half this year, a better coal-reserve system and more asset injection from the parent will help Huaneng."
Looking ahead, Huaneng said it still faces challenges including a shortage of coal, a continuous rise in coal prices and intense competition.
Meanwhile, Huaneng said it will buy Singapore's Tuas Power Ltd from its parent Huaneng Group. The parent recently acquired Tuas from Temasek Holdings for about US$3 billion.
Some analysts have voiced concerns Tuas might be overvalued and its oil and gas-fired plants may not create synergies with Huaneng, which mainly operates coal-fired ones, despite better margins in Singapore.
Huaneng aims to generate 200.8 billion kilowatt hours of electricity this year, up from 173.7 billion kwh in 2007. It plans to set aside 34.1 billion yuan this year, 19.8 billion yuan in 2009 and 8.9 billion yuan in 2010 for capital expenditure.