发帖
雷达卡
China coal sector CHINA
16 June 2009
Inside
Picking the best of the bunch 2
Thermal coal market steady 4
Prefer coking over thermal 7
Feedback from our recent coal trip 9
Analysts
YeeMan Chin
852 3922 3562 yeeman.chin@macquarie.com
Xiao Li
852 3922 4626 xiao.li@macquarie.com
Henry Liu
86 21 2412 9005 Henry.Liu@research.macquarie.com
Andrew Dale
852 3922 3587 andrew.dale@macquarie.com
Pelen Ji
852 3922 4741 pelen.ji@macquarie.com
Picking the best of the bunch
We review our earnings forecasts and recommendations following our recent
commodities upgrades and strong share price performance.
Coal fundamentals remain robust
We think fundamentals for the Chinese coal producers remain robust. Strongerthan-
expected supply-side discipline and continuing production disruptions
resulting from small mine restructuring have kept the market in balance, despite
weak demand from downstream industries.
From a longer-term perspective, the Chinese government has demonstrated its
determination to restructure and consolidate a very fragmented industry, and this
should continue to benefit the larger players.
Domestic coal prices have remained stable this year, and we expect spot
prices to stay range-bound at +/-10% for the rest of the year.
Prefer coking coal over thermal coal
We think coking coal offers the best leverage to a recovery in the world
economy. We prefer coking coal to thermal coal due to the former’s greater
supply constraints, product scarcity and less pricing regulation. Our commodities
team recently raised our international coking coal price forecasts to reflect
stronger Chinese steel production volume forecasts.
Harder to find value now
Chinese coal stocks have risen 200–300% in the past three months, and we no
longer consider them cheap on an absolute basis. It is time to be more selective.
We upgrade Shenhua to Outperform: We think the company’s recentlyunveiled
plans to double production to 400mt in five years will further cement its
position as the industry leader and provide the best leverage to an economic
recovery on a three- to five-year view.
We continue to like Fushan Energy and Hidili Industry: While we think the
stocks are trading close to fair value on a standalone basis, we see significant
option value in both names from their unique circumstances.
We downgrade China Coal to Neutral and Yanzhou Coal to Underperform,
mainly for valuation reasons. We also do not see significant upside to earnings
estimates, given our outlook for range-bound thermal coal prices.
Picking the best of the bunch
Coal fundamentals remain robust
We think fundamentals for Chinese coal producers remain robust. Stronger-than-expected
supply-side discipline and continuing production disruptions on small mine restructuring have
kept the market in balance, despite weak demand from the downstream segment.
The Chinese government has demonstrated its determination to restructure and consolidate a
fragmented industry. On a longer-term perspective, this would benefit the larger players.
Domestic coal prices have remained stable this year, and we expect spot prices to stay
range-bound at +/-10% for the rest of the year.
Prefer coking coal over thermal coal
Our global commodities team recently upgraded our 2010 metallurgical coal forecast to
US$140/t for premium hard coking coal, with smaller rises for the other metallurgical coal
qualities. Of the bulk commodities, we think coking coal presents the best leverage to any
recovery in the world economy.
In addition to the stronger steel production outlook, we prefer coking coal over thermal coal,
as coking faces greater supply constraints, product scarcity and less pricing regulation.
Harder to find value now
Chinese coal stocks have risen 200–300% in the past three months, and we no longer
consider them cheap on an absolute basis. It is time to be more selective.
Changes to our earnings and recommendations
We made small changes to reflect slightly higher pricing assumptions:
􀂃 In thermal coal, our EPS forecasts are up 11–23% for China Coal in 2009–10 and up
36–45% for Yanzhou to reflect stronger-than-expected thermal coal prices. We had
previously made changes for Shenhua.
􀂃 We raise our coking coal price assumptions and assume flat pricing (from the current
levels) in 2009 and 2010 (vs our previous assumption of a 10% decline in 2009 and 2010).
We raise our EPS forecasts by 10–19% in 2009 and by 40–43% in 2010.
We upgrade Shenhua to Outperform
Shenhua management unveiled ambitious expansion plans to more than double production to
400mt in the longer term, which would cement its position as the leading producer and
provide the best leverage to an economic recovery on a three- to five-year view.
Maintain Outperform on Hidili Industry and Fushan Energy
We maintain our positive call on the coking coal stocks, Fushan Energy and Hidili Energy.
The stocks have doubled in the past two months and are close to fair value on a standalone
basis, in our view. However, both companies have significant option values, which could
provide significant uplift to NPV and we believe a premium to NPV is justified.
Downgrade China Coal and Yanzhou Coal to Underperform
We downgrade Yanzhou Coal from Neutral to Underperform and China Coal Energy from
Outperform to Neutral, mainly for valuation reasons. While the coal market remains robust,
we do not see much upside to earnings estimates as we expect pricing to be stable. We think
share prices have run ahead of fundamentals and will struggle to find new positive catalysts.
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