China Resources Power is "Top Pick" among..

BROKER CALL - China Resources Power 'top pick' on cost controls -

Citigroup has selected Hong Kong-listed China Resources Power ("buy/low risk") as its "top pick" in the independent power producer segment as it is better able to control spiraling coal costs. The brokerage predicted in a note to investors that average net profits among Chinese independent power producers would fall by 38 pct year-on-year in 2008. It said that consensus earnings predictions for this year were "too optimistic" because they failed to fully account for coal price rises and also assumed that the government would step in and raise state-set power tariffs in the second half of the year. Results for the first quarter are also expected to lead to a period of instability among Chinese power stocks, and will probably lead to cuts in earnings forecasts, Citigroup said. Shanghai-listed Huadian Energy has already issued a profit warning for the first quarter because of rising coal prices, lower utilization rates and the government's refusal to raise tariffs, Citigroup said, and other companies in the sector are likely to follow suit. Citigroup has rated Huadian Energy's Hong Kong-listed sister company, Huadian Power International, at "sell" with a target price of 2.20 hkd. It closed trade today at 2.17 hkd. Its target price for China Resources Power stands at 23 hkd. The stock closed up 0.26 hkd or 1.53 pct at 17.24.