【名称】GS-China Coal Industry-upside suprise on fundamentals-091208
【页数】20
【来源】goldman sachs
【简介】
Upside surprise on fundamentals; differing on company specifics
Latest data points support further upside
(1) Domestic spot thermal coal price surged again last week, up to
Rmb730/t, +4% wow (largest wow move ytd) and +26% since breaking out
from its 9M09 average of Rmb580/t.
(2) IPP inventory at 12 days is 40% below seasonal norm of 20 days.
Three fundamental anchors intact for the upcycle
(1) Small mine supply constraints. Our latest channel checks with coal
traders continue to indicate sourcing difficulties from Shanxi small mines,
a structural issue that could last till 4Q10, highlighted in our Nov 6 report
“Taking the pulse of construction value chain; growth accelerating”.
(2) Potential railway bottleneck emerging. Our industry contacts indicate
limited railway upgrades scheduled for 2010 with key route Daqin Railway
maxing out at this year’s capacity of 400mt.
(3) Ytd power consumption at 3% is still below historical double-digit
growth, potentially going back to norm in 2010 as FAI-led macro recovery
boosts consumption of energy-intensive sectors (steel, cement, metals).
'10 spot forecast raised to Rmb750/t; earnings upgrade for thermal
(1) We raise 2010E Qinhuangdao spot by 5% to Rmb750/t from Rmb715/t,
+25% yoy, based on 20% coal-to-oil ratio, mid-point between trough 15%
and mid cycle 26%. Our contract forecast remains at Rmb600/t, +15% yoy.
(2) Yanzhou Coal (YCM) (76% spot exposure) benefits the most, potential
10% earnings enhancement in 2010E. Shenhua and China Coal’s 2010-11E
earnings are adjusted up by 2%-7% due to their large contract exposure,
driving up 12-m TP for China Coal by 6% while multiple remains at 17X.
Company drivers matter; YCM target raised, Hidili D/G to Neutral
(1) Yanzhou Coal: Key milestone reached for growth acceleration. YCM’s
Felix acquisition recently received NDRC approval. We have incorporated
Felix in our 2010E-2011E forecasts, boosting 2010E volume and earnings by
20% and 18% accordingly. Factoring in higher spot price forecast, we raise
YCM’s 2010E earnings by 28%, resulting in a 12-m TP increase to HK$20
for YCM (H), (12X P/E, mid-point between mid-cycle and peak, as before).
(2) Hidili: Downgrade to Neutral on company specifics (lower volume and
higher cost vs. our expectations). We cut Hidili’s 2009E-2011E earnings by
27%-29%, resulting in a cut to our 12-m TP to HK$10 (16X P/E, as before).
Key risks include earlier-than-expected small mine consolidation.