Our FY09 and FY10 EPS forecasts are now 2% and 17%, respectively, higher than those of the Bloomberg consensus following the upward adjustments to our coal-price and volume assumptions. We have revised down our FY09 and FY10 EPS forecasts by 12% and 5%, due mainly to upward adjustments to our unit-cost assumptions.
Key positives: 1) high volume growth for self-produced coal (we forecast an FY09 increase of 18% YoY), and 2) high contract price hike in 2009, but still the lowest price among its peer group. We assume Shenhua raises its contract prices by 13% and 5% for 2009 and 2010, and do not believe this has been factored fully into the share price.
Target price raised to HK$32.78 from HK$24.60, using a sum-of-the-parts methodology (a DCF of HK$7.52/share for its power segment and HK$25.26/share for its coal segment, based on the post-listing average PBR of 2.8x vs. 1.54x previously, and in line with our target PBR of 1.8x for Yanzhou Coal [1171 HK, HK$10.76, 1] after adjusting for its higher ROE). We see the key risks to our rating as policy-related taxes and slower-than-expected power-demand growth.
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