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CSCI-Utilities-China Power & Coal Monthly：Slowing power consumption growth as expected - 20180717

Slowing power consumption growth as expected

 

Power consumption growth slowed down as expected: China’s social power consumption grew less rapidly by 8% YoY and 2.3% MoM in June, slowing down significantly from the 11.4% YoY and 6.1% MoM increase in May. In our view, this is within market expectation on the basis that China’s PMI has come in lower at 51.5% in June versus 51.9% in May, whilst May’s power consumption data has largely exceeded market expectation which is not justifiable by the macro data of that month.

Power consumption growth likely to slow down further in July: We anticipate power consumption growth to slow down further in July on the back of intensified trade tensions and particularly in light of the substantial decline in secondary industry power consumption to 6.6% YoY in June from 10.9% YoY in May post confirmation in mid-June of tariffs on Chinese imports to become effective on 6 July. As such, we attribute the upsurge in power consumption in May to the temporary easing of U.S.-China trade disputes in that month.

Coal supply remained tight albeit coal imports have largely increased: China’s total coal supply amounted to 323.5mnt in June, down slightly by 2% YoY but up by 1.3% MoM. (Domestic coal output: +1.7% YoY/+0.3% MoM vs. imported coal: +17.9% YoY/+14% MoM). Looking forward, we foresee coal supply growth to remain at low single digits in July, due to slowing domestic coal output growth. Meanwhile, an upsurge in coal imports subsequent to cancellation of the import restrictions in June should largely meet the robust demand from power producers during the peak consumption season.  Thus, we estimate the coal price will be maintained at the current level of RMB660-700/t.

Stock picks: We recommend Huaneng Power (902.HK, BUY, TP: HKD6.80) and Huadian Power (1071.HK, BUY, TP: HKD4.20) as both are estimated to record substantial earnings growth for the interim.