Bank of America Securities released a research report saying investors are advised to choose defensive state-owned enterprises. The bank is optimistic about CNPC shares (00857), which has strong cash flow, maintains a “buy” rating, and lowered its target price by 3% to HK$7.8.
According to the report, the coal industry and China's Shenhua (01088) are underestimated this year because coal demand growth is expected to be limited, inventories are at historically high levels, and there is a continuing threat of imports. The bank expects that this year's fuel coal price will be 720 yuan per ton (down 16% year on year), the spot price will be lower than the contract price from the second quarter to the third quarter, while the price of coking coal will be 1,400 yuan per ton.
Bank of America Securities downgraded Shenhua's rating from “buy” to “neutral”, the target price was reduced by 23% to HK$34, and the rating of Yankuang Energy (01171) was downgraded from “buy” to “outperform the market”, and the target price was lowered by 38% to HK$8. The bank maintained a “neutral” rating for China Coal Energy (01898) and lowered its target price by 9% to HK$9.7.
