Significant payouts accompanied by other unappealing findings make Huaneng a pass
Stock: Huaneng Power International Inc (ADR)(NYSE:HNP)
Huaneng Power International, $13.9 billion Beijing-based and one of the China’s largest independent power producers, has a very appealing 6.8% dividend yield with a 118% payout ratio in the recent 12 months.
The 23-year-old power producer recently reported its first half operations that ended in June whereby it delivered a 34% (vs. 3-year ave. -5.34%) revenue increase year over year to ¥70.8 billion (Chinese Yuan) and a contrasting 96% drop (vs. 3-year ave. -6.51%) in profits to ¥244 million compared to its year-earlier period.
Huaneng recorded 29.4% higher in operating expenses resulting in lower profits. In particular, the company had 90% higher fuel expenses or ¥20.84 billion more in the recent period compared to one year earlier.
Looking at its balance sheet, Huaneng had ¥12.2 billion in cash and cash equivalents, and ¥241.5 billion in debt (¥77.3 billion higher vs. last year) with debt-equity ratio 3 times (vs. 1.95 times a year earlier). Overall equity also declined by ¥2 billion to ¥82.2 billion.
In the recent half, Huaneng’s free cash flow declined to ¥1.08 billion compared to ¥12.1 billion a year earlier brought by lower profits in the period.
In the past three years, Huaneng allocated ¥64.9 billion in capital expenditures, reduced its debt by ¥27.7 billion (net issuances and other financing activities), raised ¥7.1 billion in share issuances, and provided ¥18.08 billion in dividends representing 42.8% of its free cash flow ¥42.3 billion.
Analysts have an average hold recommendation with $27.75 target price vs. $24.81 at the time of writing. Meanwhile, declining revenue, higher expenses, and leveraged balance sheet makes Huaneng a pass.
Disclosure: I do not have shares in any of the companies mentioned.