The mainland's largest power supplier joined its peers in issuing a profits-drop warning yesterday, but analysts said an immediate electricity price hike is unlikely given the hovering inflation.

Huaneng Power International said that its first-quarter net profits may dip more than 50 percent year-on-year.

The firm earned 1.2 billion yuan in the first quarter of 2007.

Power output climbed 18.6 percent, but it failed to boost profits, the firm said in a statement to the Hong Kong Stock Exchange.

Huaneng plans to announce its first-quarter results next week. Its stock price fell 3.74 percent yesterday to close at HK$5.15.

The warning came a day after China Power International, another power giant, said it is "not optimistic about (its) results this year".

Sandwiched between surging coal prices and State-set low electricity prices, more than 70 percent of power firms on the mainland are reportedly booking losses, said Liu Nanchang, an official with the State-owned Assets Supervision and Administration Commission, on Monday.

Coal accounts for about 70 percent of the operating costs for mainland power firms, and the price of coal rose more than 20 percent last year. And market watchers expect it to jump another 20 percent this year.

Mainland power firms have long sought a coal-electricity price linkage to allow them to pass on the rising costs to customers, but the government has insisted on capping the electricity tariff to prevent the inflation problem from worsening.

Although power firms are crying foul, the odds for an immediate power-tariff hike are very slight, according to an analyst who wished to remain anonymous.

"I don't think the government will take the inflationary risk to hike power fees," he said. "Relief measures will be given only after major power firms report losses."

The mainland's consumer price index (CPI) growth slid to 8.3 in March, down from an 11-year high of 8.7 percent a month earlier.

"The figure shows inflation pressure is still there," said Louis Tse, managing director of Value Convergence Brokerages. "I don't expect a power-tariff rise in the first half."

Tse said the government may consider doing so after the CPI growth falls below 8 percent.

In the meantime, Citigroup has downgraded Huaneng from "buy" to "sell", saying the firm's unit fuel costs could have risen by more than 20 percent in the January-to-March period due to surging spot-coal prices and shipping fees, thereby exceeding its own target of containing unit-fuel cost growth to less than 18 percent for 2008.

The investment bank also cuts Huaneng's target price from HK$6.10 to HK$4.50.

(HK Edition 04/17/2008 page2)