Huaneng Discount Widens as NDFs Climb: China Overnight

Huaneng Power International Inc.’s U.S.-listed stock is trading at the biggest discount in four months versus Hong Kong, where the stock surged yesterday on prospects an economic rebound will lift electricity consumption.

China’s largest power producer climbed to a three-year high on the Hong Kong Stock Exchange, while Hurricane Sandy forced the shutdown of U.S. equity markets and trading in Huaneng’s American depositary receipts for the past two days. Forward contracts on the yuan strengthened for the fourth time in five days, after the currency climbed in Shanghai on speculation its trading band may be widened.

Growth in Chinese power consumption will rebound in the last three months of 2012 as the nation recovers from a seven-quarter slowdown, the China Electricity Council said yesterday. Consumption climbed 4.8 percent in the year to Sept. 30, while Beijing-based Huaneng said last week third-quarter net income soared 757 percent. U.S. markets resume today after the first shutdown for consecutive days due to weather since 1888.

“Huaneng benefits from a pickup in China’s power consumption as the economy recovers,” Michael Ding, lead portfolio manager of the China Regional Fund at U.S. Global Investors, which oversees $2.2 billion of assets, said by phone from San Antonio yesterday. “Coal prices are expected to stay low going forward, which will give Huaneng the potential for further gains.”

Trading Band

Thermal coal prices in China dropped 18 percent last quarter from the previous three months, Helen Lau, an analyst at Uob-Kay Hian Holdings Ltd., wrote in an Oct. 19 note. Aluminum Corp. of China Ltd., known as Chalco, said yesterday it swung to a loss in the third quarter, while net income in the period for PetroChina Co. trailed the median analyst estimate.

Twelve-month non-deliverable forwards on the yuan strengthened 0.15 percent to 6.3505 per dollar yesterday in New York, a 1.7 percent discount to its rate in Shanghai. The currency added 0.05 percent to 6.2405 yesterday.

The People’s Bank of China may widen the range the yuan’s allowed to trade within to 2.5 percent from 1 percent either side from its daily fixing rate after the U.S. presidential election and the Communist Party congress next month, said Lu Zhengwei, chief economist at Industrial Bank Co. in Shanghai, according to a China Daily report.

The Shanghai Composite Index of domestic shares gained 0.2 percent to 2,062.35, rising for the first time in four days. The Hang Seng China Enterprises Index of Chinese companies traded in Hong Kong fell 0.8 percent to 10,458.26.

Faster Growth

Growth in Chinese industrial output will be faster this quarter than in the previous three months, helping the nation achieve its 7.5 percent economic expansion target, Zhu Hongren, chief engineer at the Industry and Information Technology Ministry, said Oct. 25. Industrial production accounts for about 75 percent of the nation’s electricity use.

The Bloomberg China-US Equity Index of the most-traded Chinese companies in the U.S. declined 1.3 percent last week to 94.30 on Oct. 26, its most recent day of trading.

ADRs of Huaneng, each representing 40 ordinary shares, gained 4.1 percent last week in New York to $31.39 as of Oct. 26. That implies a 3 percent gap after the company’s 1.6 percent advance in Hong Kong and is the biggest discount since June 15.

Chalco, the nation’s largest producer of aluminum, said yesterday that it expected to lose money this year after reporting a fourth consecutive quarterly loss as overcapacity and slowing demand weigh on prices. Its ADRs have risen 1 percent this year to $10.91 in New York as of Oct. 26.

Aluminum Glut

The company posted a third-quarter net loss of 1.08 billion yuan ($173 million) compared with net income of 555 million yuan a year earlier, according to a filing. Sales fell to 37.1 billion yuan from 41.6 billion yuan.

Average aluminum prices in London sank 20 percent in the three months to Sept. 30 from a year earlier as the slowing global economy curbed demand amid an industry glut. Chalco last month dropped its C$925 million ($926 million) takeover bid for SouthGobi Resources Ltd., which mines coking coal in Mongolia, deferring diversification plans as profit margins shrank.

ADRs of PetroChina, the nation’s biggest oil producer, gained 5.6 percent this month to $136.43 by the end of last week. The ADRs are 2.1 percent below its shares in Hong Kong, the widest discount in a week. One ADR represents 100 underlying shares in the company.

China Petroleum

PetroChina’s third-quarter profit fell 33 percent to 24.9 billion yuan ($4 billion) from 37.4 billion yuan a year earlier because of refining losses and the cost of importing natural gas, the company said in a statement yesterday. That missed the 27.3 million-yuan mean of eight analysts’ estimates compiled by Bloomberg. Net income was the lowest third-quarter profit in at least five years.

Net income at China Petroleum & Chemical Corp., Asia’s biggest oil refiner, fell 9.4 percent to 18.3 billion yuan for the same quarter, the company said on Oct. 28. That result beat analysts’ estimates.

The price target for Baidu Inc. was lowered by 11 out of 13 analysts after the owner of China’s most-popular online search engine forecast sales in the fourth quarter will increase as much as 42 percent to 6.35 billion yuan, below analysts’ average projection of 6.41 billion yuan. The Beijing-based company’s ADRs have lost 2.6 percent this month to $113.84 as of Oct. 26.

New Oriental Education & Technology Group Inc., the biggest private educational service provider in China, reported lower-than-estimated profit growth on Oct. 29 for the three months ended Aug. 31. The company’s sales forecast of at least $165 million for the following quarter compared with the $169.4 million average estimate of seven analysts surveyed by Bloomberg.

‘Exonerated and Vindicated’

The Beijing-based company said on Sept. 30 that a special committee of independent directors, set up in July, had found “no significant evidence” to support allegations by short selling firm Muddy Waters LLC that New Oriental misled investors about its schools network.

“We feel exonerated and vindicated by the findings of the Special Committee refuting and discrediting Muddy Waters’ allegations,”Chairman and Chief Executive Officer Michael Yu said in the Oct. 29 statement. The company will seek to improve “the profitability of our operations through increasing learning center utilization and strict headcount and expense controls.”

‘Right Strategies’

New Oriental added a net 62 learning centers in the period between June and August, with the majority of them located in China’s smaller second- and third-tier cities, according to the statement. Sales from the new openings grew an “impressive” 35 percent, while rapid expansion had a negative impact on net income, the statement cited Yu as saying.

The first half of New Oriental’s 2013 fiscal year starting September “could be the worst period, and with the right strategies the business could improve starting in the second half and beyond,” Tian X. Hou, the founder of T.H. Capital LLC wrote in a report yesterday. She maintained her buy recommendation on the company while decreasing the price goal to $20 from $22. At least another three analysts cut their 12-month price estimates for New Oriental yesterday.

China Eastern Airlines Corp, the nation’s second-largest carrier, said yesterday net profit fell 20 percent to 2.63 billion yuan because of foreign-exchange losses and slowing demand for air travel. Air China Ltd.’s net income tumbled 16 percent to 3.17 billion yuan in the third quarter, it said yesterday.

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