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雷达卡
Government inflation policy the key risk
for China coal plays
Downgrade Shenhua from OW to
UW(V); high exposure to power and
least benefit from spot price
Initiate on Yanzhou Coal with OW(V) as
a spot coal play and lowest valuation;
initiate on China Coal with N(V)
As inflation in China balloons, we believe there will be
growing policy risk in the coal sector, similar to other energy
sectors such as oil and power that have seen tariff freezes
and windfall taxes. We expect China coal spot prices to fall
20% this year from current levels and the sector to further
de-rate given the risk of government measures to control
inflation. We also believe coal operators face higher taxes.
In our view, significant increases in coal prices are unlikely
in 2009 because of the impact on power companies’ profits.
While we expect 2008 to be another good year given strong
domestic prices (spot is up by an average 48% y-t-d and we
forecast a full-year rise of 25%), our base-case estimates do
not take into account the possibility of the government
introducing a new resources tax or product price caps.
We initiate with a cautious stance. We see most downside
risk to China Shenhua and downgrade the stock to
Underweight (V) from Overweight because it is highly
exposed to the power segment and benefits less from the
current high spot price. We initiate on China Coal with a
Neutral (V) on strong earnings growth in 2008 but see
downside risk on its investment in coal-to-chemical.
Yanzhou Coal is our preferred play based on strong earnings
growth prospects (55%); it has the most leverage to spot
prices and the lowest valuation among peers (10x 2008e PE).
目录
Investment summary 3
Solid 2008 earnings already priced in 3
Sentiment turning 3
Coal prices – the reality 4
Coal self-sufficiency 4
Prices to rise in 2008-10 5
Limited 2008e-10e contributions from new mines 6
Investment strategy 6
Risks 7
Growth outlook 11
Medium-term outlook hinges on volume growth 11
New projects 11
Coal-to-liquid 13
China supply-demand 16
China moving back to small surplus 16
Demand growth – the peak has passed 17
Balancing policy 19
Domestic price outlook 22
Domestic thermal coal prices 22
Government controls the key 25
IPPs invest in coal 27
Company profiles 29
China Shenhua Energy (1088) 30
Yanzhou Coal Mining (1171) 32
China Coal Energy (1898) 34
Appendix 1: Coal consumption in
the world context 36
Appendix 2: China coal
reserves and output 54
Appendix 3: China coal
consumption 58
Appendix 4: China coal trade,
transport and inventory 63
Appendix 5: China coke statistics 72
Appendix 6: Financials of the
China coal sector 76
Appendix 7: Coal price
fundamentals 77
Appendix 8: HSBC
commodities forecasts 79
Disclosure appendix 80
Disclaimer 83
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