20140619-美银美林-Shenhua_and_China_Coal_s_May_data_indicate_a_weak_dynamic_12页_714kb

Summary of Shenhua and China Coal's May Data and Coal Market Outlook

Core Content

The report discusses the performance of Shenhua and China Coal in May 2014, as well as the overall state of the Chinese coal market, highlighting weak dynamics and potential risks. It also includes valuation data and price objectives for various coal companies.

Main Points

Shenhua and China Coal Performance in May 2014

• Shenhua (H shares - 1088 HK, A shares - 601088 CH):

  • Coal Production: Down 5.6% YoY to 25.2mt in May.
  • Coal Sales: Down 13.8% YoY to 38.0mt in May.
  • Year-to-May: Coal production down 2.0%, coal sales down 5.4% YoY.
  • Market Cap (H shares): HK$70,699 million.
  • Valuation (H shares): PE 8.0 (2013), PE 9.0 (2014E), PE 9.0 (2015E); PB 1.3 (2013), PB 1.2 (2014E), PB 1.1 (2015E); EV/EBITDA 3.6 (2013), 3.9 (2014E), 4.9 (2015E).
  • Market Performance: 1W: +0.2%, 1M: +6.0%, 3M: +11.4%, 1Y: -12.1%, YTD: -19.8% vs. HSCEI; -13.2% vs. China Coal Index.

• China Coal (H shares - 1898 HK, A shares - 601898 CH):

  • Coal Production: Up 1.1% YoY to 10.4mt in May.
  • Coal Sales: Up 20.0% YoY to 14.5mt in May.
  • Year-to-May: Coal production up 1.2%, coal sales down 0.8% YoY.
  • Market Cap (H shares): HK$8,766 million.
  • Valuation (H shares): PE 11.5 (2013), PE 19.2 (2014E), PE 29.8 (2015E); PB 0.5 (2013), PB 0.5 (2014E), PB 0.5 (2015E); EV/EBITDA 8.2 (2013), 8.3 (2014E), 8.3 (2015E).
  • Market Performance: 1W: -3.3%, 1M: -5.7%, 3M: +4.6%, 1Y: -17.3%, YTD: -13.2% vs. HSCEI; -10.6% vs. China Coal Index.

Coal Market Weakness

• The coal market remains weak despite mixed data from Shenhua and China Coal.
• QHD5,500 Coal Price: Fell to RMB525/t by 2 June, 11% below the FY13 average.
• Inventory Trends:
  • QHD coal inventory rose rapidly to 7.0mt from 4.4mt in early May.
  • IPP inventory increased from 69.8mt (18-day) in March to 76.1mt (23-day) by 10 June.
• Hydro Power Generation: Strong due to abundant rainfall, putting downward pressure on coal demand.
• Price Outlook: Coal prices are likely to decline further by RMB10-20/ton before stabilizing during the upcoming power consumption peak season.

Policy and Economic Context

• Policy Support: Increased support for growth, with early signs of macroeconomic improvement.
• Property Sector Risk: Still a major concern for coal demand, as new floor space and sales fell by 18.6% and 7.8% YoY, respectively, indicating continued weakness.
• Downside Risk to Coal Demand: Weak property sector could depress coal price rebound in 2H14.

Analyst Ratings and Price Objectives

• Analyst Ratings:
  • Underperform: Yanzhou Coal, Yitai Coal, China Shenhua.
  • Neutral: China Coal.
• Price Objectives:
  • China Coal (CCOZF): HK$4.50, based on 0.55xPB14, reflecting the industry's trough valuation.
  • China Shenhua (CUAEF): HK$20.4, based on 1.1x2014E P/E, reflecting the industry's weakness.

Key Risks to Price Objectives

• Coal Price Volatility: If demand changes significantly, coal prices may move contrary to expectations.
• Oil Price Impact: A significant rise in oil prices could increase expectations for the profitability of coal chemical projects.

Key Information

• Valuation Table: Includes data for H shares, A shares, and global peers (e.g., Peabody Energy, Alpha Natural, Arch Coal, CONSOL Energy, Walter Energy).
• Market Performance Table: Shows the performance of various coal companies and the broader market indices (HSCEI, China Coal Index, Shanghai Composite).
• Shenhua Monthly Operations: Highlights production, sales, and transportation data for the period.
• China Coal Monthly Operations: Includes production, sales, and trading data for the period.
• Charts: Includes QHD coal price, coke price, anthracite price, PCI price, met coke price, freight rate, and international thermal coal prices.

Conclusion

The coal market in China continues to face challenges with weak demand and increasing inventory, which are expected to put further downward pressure on prices. While policy support is growing, the property sector remains a significant risk. Analysts maintain a bearish stance on the coal sector, with specific ratings and price objectives based on current valuations and outlook. The report emphasizes that the industry is in a trough cycle, making price-to-book valuation more appropriate than earnings-based methods.