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Disaster hits power equipment producer

By Wang Lan (China Daily)
Updated: 2008-05-20 09:15

Rubble of a Dongfang Electric plant in Deyang, Sichuan province, after the earthquake. Damage to plants and machinery in the earthquake and concern over a decline in corporate earnings yesterday depressed the share price of Sichuan-based Dongfang Electric Co. [China Daily]

Damage to plants and machinery in the earthquake and concern over a decline in corporate earnings yesterday depressed the share price of Sichuan-based Dongfang Electric Co, the nation's largest power equipment manufacturer.

In the first day of trading since their suspension last Tuesday, Dongfang Electric shares dropped to the 10 percent daily limit, closing at 40.37 yuan ($5.79), compared to a 0.54 percent slide in the benchmark index.

The company's wholly owned subsidiary, Dongfang Gas Turbine Co, based in Deyang, a city near the epicenter of the quake, is believed to have suffered losses of as much as 7 billion yuan.

A turbine blade factory and a welding plant were among the firm's assets destroyed by the quake.

The company accounted for around 20 percent of Dongfang's total sales last year.

Analysts said the losses caused by the earthquake would undoubtedly hurt the company's earnings this year.

"Losses are expected to go way beyond the destruction of assets and lost production," said Zou Hui, a power-equipment specialist at Orient Securities in Shanghai. Analysts pointed to the enormous cost of replacing experienced workers lost in the quake.

Employees at work at the plant before the earthquake struck. [China Daily]

Zou predicted that the company's earnings per share will drop to 1.89 yuan in 2008 from 2.5 yuan in 2007.

But other analysts said the firm's increasingly diverse product mix will help mitigate the full impact of the disaster.

"The company's earnings stemming from the gas turbine business and other traditional businesses related to non-renewable resources are expected to follow a downward curve in the coming years," said Zou Yukai, a power equipment industry analyst at Industrial Securities in Shanghai.

Among product orders signed in the first quarter of 2008, more than 30 percent were for nuclear power equipment and a further 20 percent were for wind power equipment.

Analysts said that some of the orders were likely to be transferred to competitors including Shanghai Electric and Harbin Power, the two other State-owned power equipment makers.

Shares in Harbin Power rose 2.93 percent to HK$16.84 ($2.16) while Shanghai Electric rose 4.02 percent to HK$4.91.