Daiwa released a research report that downgraded its rating on China Shenhua (01088) in March of this year. The main reason is that its coal production and sales average price have been trending downwards. Now, with the state-owned enterprise investment theme once again becoming a market focus, and given that the company's output has continued to outperform guidance and the average selling price trend is stable, its H shares rating has been upgraded from "hold" to "outperform the market", and the target price has been raised from HKD 28 to HKD 40.
The bank pointed out that although Shenhua's projected dividend yield for 2024 has decreased from 9% to 6.6%, it is still attractive compared to other higher-yielding state-owned enterprises. It also reminded that Shenhua is expected to release its interim performance report from mid to late July, which is believed to become a short-term catalyst.
Shenhua's coal production in the first five months of this year increased by 2.3% year-on-year to 136 million tons, continuously exceeding production targets. At the same time, the second-quarter coal prices have also rebounded from about RMB 800 per ton to over RMB 850 per ton. Daiwa believes that this will further enhance market confidence and accordingly, Shenhua's projected coal production for 2024 to 2026 has been raised by 2% to 4%, reaching 325 million, 328 million, and 335 million tons, respectively. Meanwhile, the average selling price forecast for the period has been raised by 1% to RMB 572 per ton.