{"id":16027,"date":"2017-09-02T13:01:43","date_gmt":"2017-09-02T17:01:43","guid":{"rendered":"http:\/\/www.pgmcapital.com\/?p=16027"},"modified":"2017-09-02T13:01:43","modified_gmt":"2017-09-02T17:01:43","slug":"why-investing-in-china-shenhua-energy-can-be-lucrative","status":"publish","type":"post","link":"https:\/\/www.pgmcapital.com\/nl\/why-investing-in-china-shenhua-energy-can-be-lucrative\/","title":{"rendered":"Why Investing in China Shenhua Energy can be Lucrative"},"content":{"rendered":"<p>Dear PGM Blog reader,<\/p>\n<p>In this weekend blog article, we want to take the opportunity to discuss with you why Investing in China Shenhau Energy can be lucrative for value investors.<\/p>\n<h3>INTRODUCTION:<\/h3>\n<p><b>China Shenhua Energy Company Limited<\/b>\u00a0known as\u00a0<b>Shenhua<\/b>\u00a0or\u00a0<b>China Shenhua<\/b>\u00a0or\u00a0<b>Shenhua Energy<\/b>\u00a0(1088.HK) is the largest coal mining enterprise in the world.<\/p>\n<p><a href=\"http:\/\/www.pgmcapital.com\/wp-content\/uploads\/2017\/09\/China_Shenhua_logo.svg_.png\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-16043\" src=\"http:\/\/www.pgmcapital.com\/wp-content\/uploads\/2017\/09\/China_Shenhua_logo.svg_-276x300.png\" alt=\"\" width=\"400\" height=\"434\" srcset=\"https:\/\/www.pgmcapital.com\/wp-content\/uploads\/2017\/09\/China_Shenhua_logo.svg_-276x300.png 276w, https:\/\/www.pgmcapital.com\/wp-content\/uploads\/2017\/09\/China_Shenhua_logo.svg_.png 400w\" sizes=\"auto, (max-width: 400px) 100vw, 400px\" \/><\/a><\/p>\n<p>It is a subsidiary of\u00a0<a title=\"Shenhua Group\" href=\"https:\/\/en.wikipedia.org\/wiki\/Shenhua_Group\">Shenhua Group<\/a>, which\u00a0is engaged in the\u00a0production\u00a0and\u00a0sale\u00a0of coal and the generation and sale of electric power in the People&#8217;s Republic of China. It operates\u00a0coal mines\u00a0as well as an integrated\u00a0railway\u00a0network and a\u00a0seaport\u00a0that are primarily used to transport its coal. It also operates\u00a0power plants\u00a0in the People&#8217;s Republic of China which are engaged in the generation and sales of coal-based power to\u00a0provincial\u00a0and\u00a0regional\u00a0electric companies.<\/p>\n<h3>H1-2017 FINANCIAL RESULTS:<\/h3>\n<p>On Friday August 25, the company,\u00a0delivered its strongest interim results in four years on the back of soaring coal prices.<\/p>\n<h4><strong>Highlights:<\/strong><\/h4>\n<ul>\n<li>Under IFRS accounting standards, the group\u2019s half-year net income rose to 26.3 billion yuan versus 10.8 billion yuan a year ago.<\/li>\n<li>The company&#8217;s total sales rose to 120.5 billion yuan from only 78.7 billion yuan in the first six months of 2016.<\/li>\n<li>Domestic coal sales prices of Shenhua rose to 425 yuan a tonne in the first half, up from 271 yuan a tonne in 2016.<\/li>\n<\/ul>\n<p>These blockbuster results in H1-2017, we mainly due to the surge of thermal coal prices in the second quarter, extending the run-up to record highs, as people cranked up air conditioners due to a prolonged heatwave, hydro-power cuts in southern China and a crackdown on mine safety.<\/p>\n<h3>MERGER WITH CHINA GUODIAN CORPORATION:<\/h3>\n<p>On Monday August 28,\u00a0The government of People&#8217;s Republic of China approved the merger of\u00a0Shenhua Group Corp., the country\u2019s top coal miner, with\u00a0<a href=\"https:\/\/en.wikipedia.org\/wiki\/China_Guodian_Corporation\" target=\"_blank\" rel=\"noopener noreferrer\">China Guodian Corp.<\/a>\u00a0to create the world&#8217;s largest power company.<\/p>\n<p><a href=\"http:\/\/www.pgmcapital.com\/wp-content\/uploads\/2017\/09\/wikipedia_org_13_650x410.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-16045\" src=\"http:\/\/www.pgmcapital.com\/wp-content\/uploads\/2017\/09\/wikipedia_org_13_650x410-300x110.jpg\" alt=\"\" width=\"400\" height=\"147\" srcset=\"https:\/\/www.pgmcapital.com\/wp-content\/uploads\/2017\/09\/wikipedia_org_13_650x410-300x110.jpg 300w, https:\/\/www.pgmcapital.com\/wp-content\/uploads\/2017\/09\/wikipedia_org_13_650x410.jpg 648w\" sizes=\"auto, (max-width: 400px) 100vw, 400px\" \/><\/a><\/p>\n<p>Shenhua Group, which will\u00a0change its name to\u00a0China Energy Investment Corporation, which will absorb Guodian Group and become the parent of the reorganized entity, the listed units of both companies said in separate Hong Kong filings.<\/p>\n<p>The listed companies are also forming a coal-fired power joint-venture, which is subject to shareholder and regulatory approvals.<\/p>\n<h3>PGM CAPITAL ANALYSIS &amp; COMMENTS:<\/h3>\n<p>As can be seen from below chart Shares of\u00a0<strong>Shenhua Energy,<\/strong>\u00a0have rallied approx. 40 percent Year-to-Date and we expect more upside after the Chinese coal miner announced a 143% jump in its first half net profit compared to a year ago.<\/p>\n<p><a href=\"http:\/\/www.pgmcapital.com\/wp-content\/uploads\/2017\/09\/Screen-Shot-2017-09-01-at-2.54.13-PM.png\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-16038\" src=\"http:\/\/www.pgmcapital.com\/wp-content\/uploads\/2017\/09\/Screen-Shot-2017-09-01-at-2.54.13-PM-300x148.png\" alt=\"\" width=\"600\" height=\"296\" srcset=\"https:\/\/www.pgmcapital.com\/wp-content\/uploads\/2017\/09\/Screen-Shot-2017-09-01-at-2.54.13-PM-300x148.png 300w, https:\/\/www.pgmcapital.com\/wp-content\/uploads\/2017\/09\/Screen-Shot-2017-09-01-at-2.54.13-PM-768x378.png 768w, https:\/\/www.pgmcapital.com\/wp-content\/uploads\/2017\/09\/Screen-Shot-2017-09-01-at-2.54.13-PM-1024x505.png 1024w, https:\/\/www.pgmcapital.com\/wp-content\/uploads\/2017\/09\/Screen-Shot-2017-09-01-at-2.54.13-PM.png 1437w\" sizes=\"auto, (max-width: 600px) 100vw, 600px\" \/><\/a><\/p>\n<p>On March 17 of this year, the company announced a generous special dividend of CNY2.51 a share for fiscal 2016, &#8211; this above the normal year end dividend of CNY 0.46 -, payable on August 23, 2017 after the company grew its net profit for the first time in four years.<\/p>\n<p>Based on the announcement of the special dividend, the share of Shenhua made their largest intraday jump on March 17, since 2008, as can be seen in above chart.<\/p>\n<h4>Leverage of the Merger:<\/h4>\n<p>According with data from\u00a0<a href=\"https:\/\/about.bnef.com\/\" target=\"_blank\" rel=\"noopener noreferrer\">Bloomberg New Energy Finance<\/a>\u00a0(BNEF), as reported by the company&#8217;s report of June this year, Shenhua had 1.014 trillion yuan in\u00a0assets and its listed unit produced about 290 million tons of coal\u00a0last year and 82 gigawatts of generating capacity.<\/p>\n<p>Guodian, according to a\u00a0statement\u00a0from the company posted by state-backed industry group China Electricity Council, had total assets of 803 billion yuan and had 145 gigawatts generating capacity.<\/p>\n<p><iframe loading=\"lazy\" src=\"https:\/\/www.bloomberg.com\/api\/embed\/iframe?id=22ba6424-02ac-4b70-8cd5-d14e1517c5c5\" width=\"300\" height=\"150\" frameborder=\"0\"><\/iframe><\/p>\n<p>The merged entity will account for 13 percent of both China\u2019s power-generating and coal-mining capacity, for which the new company\u2019s totals at 221 gigawatts of generating capacity and about 500 million tons coal respectively a year.<\/p>\n<p>The combined company will also be able to hedge against market risks between coal and power, in the sense that they can sell their nuclear technology or their coal-power technology to emerging markets in Asia.<\/p>\n<p>Based on the company&#8217;s business model, strong balance sheet, forward P\/E ratio of 11 and a dividend yield of 16.26 percent, we have a BUY RATING on the shares of the company.<\/p>\n<p class=\"canvas-atom canvas-text Mb(1.0em) Mb(0)--sm Mt(0.8em)--sm\">Last but not least, before taking any investment decision, always take your investment horizon and risk tolerance into consideration and keep in mind that commodity prices as well as the securities of their producers, can be very\u00a0volatile and that sharp corrections might happen in the short term.<\/p>\n<p>Yours sincerely,<\/p>\n<p><a href=\"http:\/\/www.pgmcapital.com\/wp-content\/uploads\/2015\/06\/eric.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-14\" src=\"http:\/\/www.pgmcapital.com\/wp-content\/uploads\/2015\/06\/eric.jpg\" sizes=\"auto, (max-width: 112px) 100vw, 112px\" srcset=\"http:\/\/www.pgmcapital.com\/wp-content\/uploads\/2015\/06\/eric.jpg 160w, http:\/\/www.pgmcapital.com\/wp-content\/uploads\/2015\/06\/eric-150x150.jpg 150w\" alt=\"\" width=\"112\" height=\"112\" \/><\/a><\/p>\n<p>Eric Panneflek<\/p>","protected":false},"excerpt":{"rendered":"<p>Dear PGM Blog reader, In this weekend blog article, we want to take the opportunity to discuss with you why Investing in China Shenhau Energy can be lucrative for value investors. INTRODUCTION: China Shenhua Energy Company Limited\u00a0known as\u00a0Shenhua\u00a0or\u00a0China Shenhua\u00a0or\u00a0Shenhua Energy\u00a0(1088.HK) is the largest coal mining enterprise in the world. It is a subsidiary of\u00a0Shenhua Group,<a href=\"https:\/\/www.pgmcapital.com\/nl\/why-investing-in-china-shenhua-energy-can-be-lucrative\/\">[&#8230;]<\/a><\/p>\n","protected":false},"author":2,"featured_media":16050,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[51],"tags":[],"class_list":["post-16027","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-pgm-capital-blog"],"_links":{"self":[{"href":"https:\/\/www.pgmcapital.com\/nl\/wp-json\/wp\/v2\/posts\/16027","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.pgmcapital.com\/nl\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.pgmcapital.com\/nl\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.pgmcapital.com\/nl\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.pgmcapital.com\/nl\/wp-json\/wp\/v2\/comments?post=16027"}],"version-history":[{"count":21,"href":"https:\/\/www.pgmcapital.com\/nl\/wp-json\/wp\/v2\/posts\/16027\/revisions"}],"predecessor-version":[{"id":16052,"href":"https:\/\/www.pgmcapital.com\/nl\/wp-json\/wp\/v2\/posts\/16027\/revisions\/16052"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.pgmcapital.com\/nl\/wp-json\/wp\/v2\/media\/16050"}],"wp:attachment":[{"href":"https:\/\/www.pgmcapital.com\/nl\/wp-json\/wp\/v2\/media?parent=16027"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.pgmcapital.com\/nl\/wp-json\/wp\/v2\/categories?post=16027"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.pgmcapital.com\/nl\/wp-json\/wp\/v2\/tags?post=16027"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}