<< from timlee11 >> Asia Pacific Equity Research 26 July 2007
Overweight HK$ 25 July 2007 Coal Sector Price Target: HK$ Raising PTs for Shenhua and YCM Overweight HK$ 25 July 2007 Price Target: HK$ • More positive on coal prices: We raise our FY08 and FY09 EPS China estimates and Jun-08 PTs for China Shenhua Energy (Shenhua) Mining and Yanzhou Coal Mining (YCM) on higher coal price Feng ZhangAC assumptions. We remain positive on the fundamentals of the (852) 2800 8513 China thermal coal market, but we think the stock prices will take @ a breather before going up again in 4Q07. Edmond Lee, CFA • Investment drivers: We raise our coal price forecasts. China’s (852) 2800-8575 spot coal prices are likely to go up 6%Y/Y in 08E (previously 5%) @ and 2%Y/Y in 09E (previously flat). On the supply side, China’s Emily Zhang fixed asset investment growth in coal slowed down to about 15% (852) 2800-8514 Y/Y in 1H07, down from 27% Y/Y in 2006 and 68% Y/Y in @ 2005. We expect China to turn into importer of coal in 2008, One-year relative price performance which is likely to result in a premium for China’s coal prices over 320% the regional prices. 270% 220% • Potential catalysts and share price drivers: We think that coal 170% stocks need a period of consolidation before moving up again in 120% 70% 4Q07 (international coal prices are under some pressure now). Jul-06 Oct-06 Jan-07 Apr-07 Demand in 4Q is normally the strongest in the year, due to low MSCI China YCM Shenhua hydro power generation. Source: Datastream. • PT, valuation, key risks: We raise our Jun-08 PT for YCM by 34% to HK$ from HK$; we derive our PT by applying 08E P/E (global average) to 08E EPS. We also raise our Jun- 08 SOTP-based PT for Shenhua by 19% to HK$. We believe the key risk to our PTs is lower-than-expected coal prices.
