China Shenhua Energy Company Limited

China Shenhua Co. Ltd (SEHK:1088) is the largest coal company in the world. The company, considered as a state-owned-enterprise (SOE), has a sales volume of coal of about 370.5 million tonnes in 2015. It is also a key electricity company in China with an installed capacity of 54,128 MW among its power plants.

STOCK INFORMATION

1
TICKER SYMBOL: SEHK:1088
MARKET CAP: HK$ 397.8 Billion (Updated 12 Nov 2016)
MARKET PRICE / SHARE: HK$ 17.2 (Updated 12 Nov 2016)
SECTOR: Energy
INDUSTRY: Coal and Utility

THE BUSINESS

China Shenhua Co. Ltd is the largest coal company in term of sales volume. It also controls and operates power generators across China, amounting to more than 54,000 MW in capacity. This makes it one of the largest electricity producer in China.
China Shenhua Co. also operates a series of transportation network across China for its coal business.

KEY STATISTICS (FY2015) 

Net Revenue: CNY$ 177.1 Billion
Net Income: CNY$ 17.6 Billion
Total Assets: CNY$ 559.8 Brillion
Earnings per Share: CNY$ 0.89
Dividend per Share: CNY$ 0.32
Net Income Margin: 10.0%
ROE: 5.9%

KEY OPPORTUNITIES

1. Growing Energy Requirement
China is still one of the fastest growing economies in the world, estimated to grow around 6-7% in the next few years. Thus, energy demand in China continues to be on the rise. Coal, being one of the key raw material of energy usage in China, it should directly benefit from the rising demand in energy needs in China.
2. Strong Balance Sheet
China Shenhua Energy maintains a strong balance sheet. The company has a near net-cash position and is still generating strong free cash flow from its business. This allows the company to be flexible in acquiring more assets to the group to grow in the future.

KEY RISKS

1.Renewable Energy
Being mainly a coal producer, the trend toward clean energy is not positive for the company. However, the company has a development strategy to “transforming into a world first-class supplier of clean energy”. This is certainly a good direction for the company to pursue but it is still too early to see any result from the company in its transition.
2. Government Policies
Energy is a highly politicized sector. Although the company is a SOE, it is still subjected to the rules and regulation of the government when operating in China. Any change in the coal mining rights or clean energy laws in China would directly impact the business of China Shenhua.

VALUATION

China Shenhua Energy is trading at 17.5 times its earnings and offers a 2.1% dividend yield.

LISTED PEERS

1. Yanzhou Coal Mining (HK:1171)
2. China Coal Energy Company Limited (HK:1898)

INVESTOR RELATIONS

Investor Relation Material:
Annual Report
Financial Information
China Shenhua Investor Relations
Address: Beijing, Dongcheng District, No. 22 West Riverside Road
Zip: 100011
Secretaries Hotline: (86-10) 58131088
Investor Hotline: (86-10) 58133355 / 58133399
Fax: (86-10) 58131804 / 58131814
Secretaries E-mail: 1088@csec.com
E-mail: ir@csec.com

TOP SHAREHOLDERS DIRECT INTEREST (31 SEP 2016)

1. Shenhua Group Corporation – 73.06%
2. China Securities Financial Corp – 3.03 %
3. Blackrock Inc – 1.17%

FINANCIALS

Morningstar – Income Statement
Morningstar – Balance Sheet

The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in Value Invest Asia capacity and do not in any way represent those of any related entities.

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