EAST ASIA SECURITIES COMPANY LIMITED 9/F, 10 Des Voeux Road Central, Hong Kong. Dealing: 3608 8000 Research: 3608 8096 Facsimile: 3608 6132

HONG KONG RESEARCH Analyst: Stanley Lau 29th March 2006

This report has been prepared solely for information purposes and we are not soliciting any action based upon it. Neither this document nor its contents shall be construed as an offer, invitation, advertisement, inducement or representation of any kind or form whatsoever. The information is based upon information which we consider reliable, but accuracy or completeness is not guaranteed. Opinions expressed herein are subject to change without notice. At time of this report, East Asia Securities Company Limited has no position in securities of the company or companies mentioned herein, while its group companies may from time to time have interests in securities of the company or companies mentioned herein.

Huaneng Power International, Inc. (華能國電)

Sector : Utilities Chairman : Li Xiaopeng HKSE Code : 0902 Market Price : HK$5.100 (28/03/2006) HSI : 15,856.58 (28/03/2006) H Shares Issued : 3,055 million H-share Market Cap. : HK$15,582 million 52 weeks Hi/Lo : HK$6.100 / HK$5.000

SUMMARY OF THE FINAL RESULTS FOR THE YEAR ENDED 31ST DECEMBER 2005

Final Results Highlights

FY2005 FY2004 RMB million RMB million Change • Operating revenue 40,190 30,151 +33.3% • Total operating expenses (33,068) (23,200) +42.5% • Operating profit 7,009 6,918 +1.3% • Net financial expenses (1,124) (740) +52.0% • Share of profit/(loss) of associates 644 312 +106.5% • Attributable profit 4,872 5,324 -8.5% RMB RMB • EPS – Basic 0.40 0.44 -9.1% • Final DPS 0.25 0.25 Unchanged

• Huaneng reported an 8.5% y-o-y decline in net profit to RMB4.87 billion for the year ended 31/12/2005, due primarily to higher fuel costs and heavier interest burden. The result was largely in line with the consensus forecast of RMB4.83 billion.

• Operating revenue grew 33.3% y-o-y to RMB40.19 billion on a 31.7% y-o-y increase in power generation output aided by contributions from newly acquired power plants and newly operated generating units.

• Total operating expenses jumped 42.5% y-o-y to RMB33.07 billion. Fuel costs, which accounted for 64.1% of total operating expenses, rose 40.7% y-o-y to RMB21.20 billion, as high coal prices pushed unit fuel cost up 11.8% y-o-y. In addition, depreciation charges climbed 31.0% y-o-y to RMB6.17 billion following the acquisition of power plants and the commercial operation of new generating units. As such, operating profit was up just 1.3% y-o-y to RMB7.01 billion, with operating margin shrinking to 17.4% from 22.9% in FY2004.

• In order to fund capacity expansion, more borrowings were required in FY2005, resulting in net financial expenses up 52.0% y-o-y to RMB1.12 billion.

• As of 31/12/2005, total debts amounted to RMB40.90 billion (31/12/2004: RMB23.31 billion), while cash and cash equivalents totalled RMB2.65 billion (31/12/2004: RMB2.30 billion). Net gearing ratio was high at 89% (31/12/2004: 59%).

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• EPS was 9.1% y-o-y lower at RMB0.40. A final DPS of RMB0.25 was proposed, the same as in FY2004. With no interim dividend, full-year payout ratio was 62.5%, versus 52.8% in FY2004.

Business Review

• As of 31/12/2005, Huaneng had an attributable power generation capacity of 22,253 MW, up from 21,418 MW as of 31/12/2004.

• In FY2005, total power generation based on a consolidated basis amounted to 150.51 billion kWh, up 31.7% y-o-y, as a result of the following factors:

Full-year contributions from Yushe Power Plant Phase II and Qinbei Power Plant;

The commencement of commercial operation of Huaiyin Power Plant Phase II and Shantou Power Plant Phase II;

Contributions from the 2 power plants acquired in January 2005 – Pingliang Power Plant and Sichuan Hydro Power Plant.

• Average tariff rate increased 1.08% y-o-y to RMB331.41/MWh, as tariffs for most of the

operating plants were adjusted following the implementation of the coal-electricity price linkage mechanism effective May 2005. However, the consolidated tariff is lower for the newly acquired Pingliang Power Plant and Sichuan Hydro Power Plant and, therefore, trimmed the overall effect of tariff adjustment.

• Unit fuel cost of power output surged 11.8% y-o-y to RMB156.13/MWh and more than offset the increase in tariffs. Average coal consumption rates for power sold and power generated were 337.1 g/kWh (FY2004: 337.5 g/kWh) and 317.8 g/kWh (FY2004: 319.3 g/kWh) respectively.

Outlook & Prospect

Higher fuel costs offset tariff rises

Unit fuel cost rose 11.8% y-o-y in FY2005, outpacing the increase in average tariff rate. As a result, operating margin was squeezed to 17.4% from 22.9% in FY2004. Despite stabilising spot coal prices so far this year, the shortage of rail carriages to transport coal would prevail to add on cost. Escalating interest expenses

Huaneng’s latest acquisitions and the inheriting debts have raised its debt level by RMB17.6 billion in FY2005. Net gearing ratio stayed very high at 89%. We expect the Company’s interest expenses to remain high as it plans to have significant capital expenditure in FY2006 for capacity expansion. Positive effect from coal-electricity price linkage mechanism

Effective May 2005, power companies could transfer 70% of coal price rises to on-grid tariffs through the coal-electricity price linkage mechanism. As reflected from a slight improvement in Huaneng’s average tariff rate in FY2005, the mechanism seems effective to partly cushion the impact of coal price movements. Limited upside The stock has corrected nearly 10% since its interim results announcement in August 2005. Trading at 12.3x FY2006E P/E, valuation of the counter should have priced in most of the negative factors. However, regulatory concerns over capacity influx in China’s power sector and pending outcome of coal-price-contract negotiation could limit its upside. Recommendation: Neutral

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