Chinese Coal

Chinese coal
Sector outlook
Andrew Driscoll, CFA

andrew.driscoll@clsa.com
(852) 26008528
Daniel Meng
(852) 26008355
Big three to four

Chinese coal equities rallied and then rolled over ahead of the listing of
Yitai Coal in Hong Kong tomorrow. Its a US$9bn stock, boasting higher
margins and stronger production growth than the three incumbents. We
flag that 40% of the growth is from assets to be acquired from its parent,
and other concerns relate the short life of some mines and low share
market liquidity. Despite its recent outperformance, Shenhua remains our
preferred coal exposure at this stage of the coal market rebalancing.
Bouncing around
q Coal equities enjoyed a rally last week (the big three up 8-14% in 4D), driven by a
bounce in oil, seaborne coal prices and US coal equities, and some warm weather.
11 July 2012
q This coincided with pricing of the Yitai Coal IPO (around 05 July), but the deal was
China
still priced at the bottom of the HK$43-53 range, to raise US$920m (post shoe).
q The bounce has stalled, with the big three giving back 2-7% in the past four days
Materials
as Chinese coal prices continued to fall, the fuel price cut, and risk-off mood.
Comparative analysis
Stocks in focus:
q At ~US$10bn, Yitai Coal has a similar EV to China Coal and Yanzhou Coal, but its
China Coal
Rec
Market cap
Price
Target
Upside
1898 HK
O-PF
US$14.2bn
HK$6.44
HK$8.50
32%
Shenhua
Rec
Market cap
Price
Target
Upside
1088 HK
BUY
US$69.2bn
HK$28.50
HK$33.80
18%
Yanzhou Coal
1171 HK
Rec
BUY
Market cap
US$11.5bn
Price
HK$11.40
Target
HK$16.80
Upside
47%
Yitai Coal
Rec
Market cap
Price
Target
Upside
3948 HK
No Rec
US$9.0bn
HK$43.00
na
na
high margins, contract exposure, and rail network make Shenhua a better comp.
q Yitai Coals 2011 Ebitda margin (47%) is the highest amongst the four companies,
and it has the strongest production growth (21% Cagr 2012-14E), but 40% of this
growth is from assets to be acquired from its parent, some which have short lives.
q Liquidity is a potential concern: the H share market cap of US$920m (US$530m excorner stones) implies daily turnover of US$8m (US$5m), based on peer ratio.
Coal price scenario analysis

q The big three are cheap on our base case coal price forecasts, trading at 6.1-9.6x
12CL PE and 3.8-5.3x EV/Ebitda; this compares to Yitai Coal, which was priced at
7.6x 12 PE. There is downside risk to our coal price forecasts relative to spot prices.
q Revisiting our previously published downside scenario sees 13CL earnings fall 10%
for Shenhua and 22-28% for China Coal and Yanzhou, placing the stocks at 8-10x
PE; while mark-to-market analysis results in 16-42% earnings cuts and ~11x PE.
Shenhua favoured
q Shenhua remains our preferred exposure at this stage of the coal market
rebalancing given its asset quality, low leverage and defensive earnings attributes.
q Yanzhou Coal offers the most leverage to recovering spot coal prices once supply
has adjusted, but also has most downside risk to consensus earnings.
q We note that historical precedence shows that the stocks can rally sharply from
oversold levels when sentiment inflects, even in a weak coal price environment.
Comparing the big four

Parameter
Market cap (H price)
Enterprise value
H share market cap
3M ADTO H shares
Coal reserves
12CL production
3Y Production Cagr
11A Ebitda margin
12CL Ebitda margin
12CL PE
13CL PE
EV/Reserve tonne
www.clsa.com
Unit
(US$m)
(US$m)
(US$m)
(US$m)
(mt)
(m tonne)
(%)
(%)
(%)
(x)
(x)
(US$/t)
China Coal
12,492
10,477
3,400
24.2
2,981
138
9.7
20.9
19.5
8.3
7.4
4.0
Shenhua
72,862
70,260
12,451
59.4
9,346
305
5.6
38.5
37.8
10.1
9.3
7.5
Yanzhou
7,206
12,718
1,990
31.0
1,952
62
15.3
39.9
32.5
7.4
7.2
6.5
Yitai Coal1
9,009
9,763
917
1,235
53
21.3
47.2
7.62
7.9
Data from IPO Prospectus, assumes green shoe is allotted and the acquisition completed,
reports. See footnote on Figure 6. IPO Prospectus, Bloomberg, CLSA Asia-Pacific Markets
Press
Find CLSA research on Bloomberg, Thomson Reuters, CapIQ and themarkets.com - and profit from our evalu@tor proprietary database at clsa.com
anonymous@anonymous.com FIRST LAST 07/11/12 03:17:46 PM Hong Kong HighpowerPrepared for: ThomsonReuters
Chinese coal
Big three to four
Bouncing around
Rally last week, and more
recently giving back gains
Coal equities enjoyed a rally last week (the big three up 8-14% in four days),
driven by a bounce in oil, seaborne coal prices and US coal equities, and
some warm weather. This coincided with pricing of the Yitai Coal IPO (around
05 July), but the deal was still priced at the bottom of the HK$43-53 range, to
raise US$920m (post shoe). The bounce has stalled, with the big three giving
back 2-7% in the past four days as Chinese coal prices continued to fall, the
domestic fuel price cut, and risk-off mood.
Figure 1
We are positive the

Chinese coal equities
based on valuations and
investor positioning
Big three coverage & Yitai Coal

Company
Ticker
Rec
Mkt Cap
Last price
Target price
Upside/
(US$m)
14,146
69,168
(HK$)
6.44
28.50
(HK$)
8.50
33.80
Down (%)
32.0
18.6
11,517
11.40
16.80
47.4
9,009
43.00
China Coal
Shenhua Energy
1898 HK
1088 HK
O-PF
BUY
Yanzhou Coal
1171 HK
BUY
Yitai Coal-H
3948 HK
No Rec
All prices 11 July 2012, unless otherwise stated. Source: CLSA Asia-Pacific Markets
Figure 2
The stocks are cheap on

our base case coal price
forecasts
Big three valuations

Company
Ticker
China Coal
Shenhua Energy
Yanzhou Coal
PE (x)
12CL
7.1
9.6
6.1
1898 HK
1088 HK
1171 HK
EV/Ebitda (x)
13CL
6.1
8.7
5.9
14CL
6.7
9.6
6.0
12CL
4.5
5.3
3.8
13CL
4.1
4.7
3.6
14CL
4.0
4.7
3.8
Source: CLSA Asia-Pacific Markets

Figure 3
Performance of the big

three and Yita B Share
Share price performance

Company
Since 5 July
1M
3M
YTD
since Jan-11
MSCI China Index
(2.3)
(0.2)
(7.2)
0.7
(19.8)
China Coal
(7.5)
(4.9)
(25.6)
(23.5)
(47.2)
Shenhua
(2.1)
9.6
(12.1)
(15.6)
(12.7)
Yanzhou Coal
(5.6)
(7.9)
(31.2)
(31.5)
(52.2)
Yitai Coal-B
(1.2)
13.9
0.0
14.5
(20.2)
Bloomberg, Source: CLSA Asia-Pacific Markets
Amongst our ten largest

coal miners, Yitai Coal B
Share is a top two
performer both MoM and
YTD
Figure 4
Figure 5
Top 10 coal miners: MoM performance
Top 10: YTD performance
(%)
Yitai Coal-B
Adaro Energy
Consol Energy
Coal India
ITM
Shenhua Energy
Peabody Energy
China Coal
(2)
Whitehaven
(3)
(19)
(19)
(24)
(28)
Yanzhou Coal (32)
China Coal (6)
Peabody Energy (32)
Yanzhou Coal(8)
(10) (5)
(2)
(16)
Consol Energy
Whitehaven
Adaro Energy
MSCI Asia
15
MSCI Asia
10
Shenhua Energy
17
Yitai Coal-B
13
ITM
(%)
Coal India
14
10
15
20
(40)
(20)
20
Source: Bloomberg, CLSA Asia-Pacific Markets
11 July 2012
Chinese coal
Big three to four
Comparative analysis
Similar size to China Coal
and Yanzhou, but
attributes appear more
similar to Shenhua
At ~US$10bn, Yitai Coal has a similar EV to China Coal and Yanzhou Coal, but
its high margins, contract exposure, and rail network make Shenhua a better
company for comparison. Yitai Coals 2011 Ebitda margin (47%) is the
highest amongst the four companies, and it has the strongest production
growth (21% Cagr 2012-14E), but 40% of this growth is from assets to be
acquired from its parent, some which have short mine lives. Liquidity is a
concern, with the H share market capitalisation of ~$920m (~$530m excorner stones), implying daily turnover of $8m ($5m), based on peer ratio.
Figure 6
Comparative analysis: Yitai Coal and the big three

A similar EV to China Coal
and three quarters the
scale of Yanzhou Coal
A much lower H share

market cap; assuming a
similar ADTO/market cap
ratio to peers (0.9%)
implies ADTO of $8.4m or
$4.8m netting the
cornerstone investors
A smaller production base

and stronger production
growth profile
A thermal coal play with

~50% of coal sold on a
contract basis, similar to
China Coal, and
moderately less than
Shenhua
Syndicate 2012 PE is 7.6x,
according to press
reports; compared with
the big three at 6.1-9.6x
12CL PE
A shorter mine life on

average, and more
expensive on EV/reserve
tonne metrics
Highest margins in the

peer group
Stock info
Last price
Shares on issue
Market cap (H price)
Net debt (cash) End-11A
Enterprise value
Liquidity
H share market cap
3M ADTO H shares
3M ADTO A/B share
Reserves and resources
Operating mines
Coal reserves
Coal resources
Coal production
11A
12CL
13CL
14CL
09-11A Cagr
12-14CL Cagr
Coal specifications
Unit
(HK$/share)
(m)
(US$m)
(US$m)
(US$m)
(US$m)
(US$m)
(US$m)
(number)
(mt)
(mt)
(m tonne)
(m tonne)
(m tonne)
(m tonne)
(%)
(%)
Production mix
Average CV (CLSA est.)
Contact sales ratio
Valuations
12CL PE
13CL PE
14CL PE
12CL EV/Ebitda
13CL EV/Ebitda
14CL EV/Ebitda
Other metrics
Mine life (12CL/Reserves)
EV/Reserve tonne
EV/12CL production
12-14CL EPS Cagr
12CL NPV
12CL P/NPV
Ebitda margin
11A
12CL
(Kcal/kg)
(%)
(x)
(x)
(x)
(x)
(x)
(x)
(Years)
(US$/t)
(US$/t)
(%)
(HK$/share)
(x)
(%)
(%)
China Coal
6.44
13,259
10,975
(498)
10,477
Shenhua
28.50
19,890
72,862
(2,602)
70,260
Yanzhou
11.40
4,918
7,206
5,511
12,718
Yitai Coal1
43.00
1,630
9,009
754
9,763
3,400
24.2
15.8
12,451
59.4
56.7
1,990
31.0
19.1
917
2.0
13
2,981
19,640
23
9,346
25,400
16
1,952
-
12
1,235
2,312
129
138
155
171
12.2
9.7
282
305
322
332
14.9
5.6
51
62
68
78
12.8
15.3
35
53
58
63
24.6
21.3
-
~97% TC
~3% CC
~100% TC
5,100
50
4,800
60
~80% TC,
~20%
PCI/SSCC
5,200
15
7.1
6.1
6.7
4.5
4.1
4.0
9.6
8.7
9.6
5.3
4.7
4.7
6.1
5.9
6.0
3.8
3.6
3.8
6.7
-
21.6
3.5
75.8
(2.3)
10.06
0.64
30.7
7.5
230.4
(1.8)
38.82
0.73
31.3
6.5
204.1
5.3
19.35
0.59
23.2
7.9
183.5
-
20.9
19.5
38.5
37.8
39.9
32.5
47.2
-
~100% TC
4,900
50
Data from IPO Prospectus, assumes green shoe (2%) is allotted. Notes: China Coal, Shenhua and Yitai
Coal's reserves are JORC basis. Yanzhou Coal reserves are a sum of PRC Standard reserves and JORCcompliant reserves for Felix. All of Yitai Coal's numbers are the pro-forma data of its existing mines and
the five mines to be acquired. Source: IPO Prospectus, Company, CLSA Asia-Pacific Markets
11 July 2012
Chinese coal
Big three to four
Coal price scenario analysis

Cheap on our base case at
6.1-9.6x 12CL PE and 5.98.7x 13CL PE
The big three are cheap on our base case coal price forecasts, trading at 6.19.6x 12CL PE and 3.8-5.3x EV/Ebitda. There is downside risk to our coal price
forecasts relative to spot prices. Revisiting our previously published downside
scenario sees 13CL earnings fall 10% for Shenhua and 22-28% for China Coal
and Yanzhou, placing the stocks at 8-10x PE; while mark-to-market analysis
results in 16-42% 13CL earnings cuts and implies ~11x PE.
Figure 7
Base case assumptions
CLSA coal price forecasts

Base case
Last
12CL
13CL
14CL
650
770
780
755
QHD Contract (Rmb/t)
~600
599
629
660
Shanxi Coking coal (Rmb/t)
1,550
1,586
1,511
1,382
90
108
110
110
147
151
143
130
QHD Spot (Rmb/t)
Seaborne thermal (US$/t)

Seaborne SSCC (US$/t)
Source: Platts, CCTD CLSA Asia-Pacific Markets
Figure 8
Scenario analysis
Our previously published
downside scenario sees
13CL earnings cuts of 1029%, implying 8-10x PE
CLSA downside scenario
12CL
13CL
14CL
QHD Spot (Rmb/t)
736
700
700
599
629
660
1,506
1,395
1,395

101
98
98
132
108
108
China Coal (%)
(9.8)
(22.2)
(15.4)
Shenhua Energy (%)
(4.1)
(9.8)
(7.8)
(10.6)
(27.7)
(21.0)
EPS Change to base case
Yanzhou Coal (%)

PE multiple
China Coal (x)
8.1
8.3
8.0
10.4
10.2
10.6
7.0
8.5
7.6
China Coal (x)
5.4
5.5
5.1
Shenhua Energy (x)
5.8
5.5
5.2
Yanzhou Coal (x)
4.7
5.3
5.1
12CL
13CL
14CL
QHD Spot (Rmb/t)
711
650
650
599
599
599
1,550
1,550
1,550
Shenhua Energy (x)

Yanzhou Coal (x)
EV/Ebitda multiple
A mark-to-market
scenario, which we think
is unrealistic leads to
13CL earnings cuts of 1641%, implying 10.8-11.1x
PE
Mark-to-market scenario

97
90
90
127
99
99
(16.1)
(34.3)
(29.5)
(7.2)
(16.2)
(14.7)
(15.9)
(41.4)
(37.2)
EPS Change to base case

China Coal (%)
Shenhua Energy (%)
Yanzhou Coal (%)
PE multiple
China Coal (x)
8.7
11.1
12.8
10.8
11.1
11.7
7.5
10.8
10.0
China Coal (x)
5.7
6.6
6.8
Shenhua Energy (x)
5.9
5.9
5.6
Yanzhou Coal (x)
4.9
6.3
6.2
Shenhua Energy (x)

Yanzhou Coal (x)
EV/Ebitda multiple
11 July 2012
Chinese coal
Big three to four
Appendix 1: Global coal valuations

Bloomberg World Coal Index (modified)
Company
Code
1W
3M
2011
2012
2013
2011
2012
Shenhua-A
601088 CH
69,775
(1.2)
(11.9)
9.0
8.1
7.4
Coal India
COAL IN
40,219
(0.8)
6.2
15.2
13.4
11.9
9.6
7.7
6.4
Shenhua-H
1088 HK
69,775
0.7
(10.0)
9.7
8.8
8.2
5.2
4.5
3.9
China Coal-A
601898 CH
14,162
(3.5)
(15.5)
9.3
7.9
7.6
7.4
6.0
5.0
Yanzhou Coal-A
600188 CH
11,740
(3.3)
(16.9)
10.6
9.4
9.5
7.2
6.2
5.3
Peabody Energy
BTU US
6,112
(14.4)
(17.8)
8.7
6.6
5.3
5.6
4.6
3.8
Shanxi Xishan-A
000983 CH
7,290
(6.1)
(2.3)
13.9
12.8
11.3
Consol Energy
CNX US
6,747
(4.9)
(11.7)
16.9
12.8
10.4
6.8
6.0
5.2
Shanxi Lu'an-A
601699 CH
7,044
(7.1)
(25.4)
10.3
9.0
8.0
Exxaro Resources
EXX SJ
7,777
(8.0)
(15.3)
7.0
6.2
6.1
10.3
11.8
10.2
Yangquan Coal-A
600348 CH
5,583
(4.4)
(18.2)
11.6
10.2
9.9
Jizhong Energy-A
000937 CH
5,278
(7.7)
(20.5)
9.9
8.7
8.3
Adaro Energy
ADRO IJ
4,806
(7.1)
(20.2)
8.3
7.5
6.5
4.5
4.1
3.5
Bayan Resources
BYAN IJ
4,074
(3.0)
(34.3)
24.4
27.2
11.3
17.4
16.2
7.5
Alpha Natural Resources
ANR US
1,659
(19.2)
(47.2)
4.1
3.5
3.1
Indo Tambangraya Megah ITMG IJ
4,556
(0.9)
(9.0)
9.2
8.9
7.8
5.4
5.2
4.5
14,162
(3.0)
(22.7)
7.0
6.1
6.0
5.9
5.3
4.9
China Coal-H
1898 HK
Bumi Resources
BUMI IJ
Yanzhou Coal-H
1171 HK
Pingdingshan Tianan
Mkt cap
(US$m)
Performance %
PE (x)
EV/Ebitda (x)
2013
2,462
(3.4)
(47.5)
7.0
5.9
4.0
4.6
4.2
3.1
11,740
(5.5)
(29.0)
6.1
5.8
5.9
7.0
6.5
6.2
601666 CH
3,453
(8.2)
(17.9)
10.9
9.5
8.8
New Hope
NHC AU
3,331
(1.0)
(20.9)
17.0
19.2
16.5
8.4
7.9
7.2
Banpu
BANPU/F TB
3,922
3.2
(22.5)
9.0
8.5
7.4
5.9
5.5
5.3
Banpu
BANPU TB
3,940
(1.7)
(19.7)
9.1
8.5
7.4
5.9
5.5
5.3
Guizhou Panjiang Ltd-A
600395 CH
4,904
1.6
(6.1)
14.6
12.2
10.7
Walter Energy
WLT US
2,353
(17.6)
(35.1)
9.6
5.6
5.3
6.4
4.3
4.0
Bukit Asam
PTBA IJ
3,706
0.3
(20.4)
9.9
9.5
8.1
6.4
5.9
4.7
Datong Coal-A
601001 CH
2,731
(3.7)
(20.3)
13.5
12.0
11.0
Shanxi Lanhua-A
600123 CH
3,222
(4.9)
(20.3)
8.5
7.3
6.6
Beijing Haohua
601101 CH
2,676
(1.4)
(13.8)
12.0
11.0
11.2
Arch Coal
ACI US
1,297
(17.0)
(38.6)
11.0
8.0
6.6
5.1
Huolinhe Opencut Coal-A
002128 CH
2,911
1.5
(8.5)
11.4
9.8
8.5
Henan Shenhuo-A
Jastrzebska Spolka
Weglowa
Mongolian Mining Corp
000933 CH
2,319
(3.9)
(12.2)
8.7
8.2
6.8
JSW PW
3,209
(1.4)
6.7
7.8
8.5
8.8
3.2
3.3
3.3
975 HK
Weighted average
Fushan
639 HK
Hidili Industry
1393 HK
SouthGobi
1878 HK
Yitai Coal-B share
900948 CH
2,246
(4.7)
(31.2)
9.3
6.2
5.2
6.1
4.4
3.8
341,184
(3.7)
(14.3)
10.6
9.5
8.5
7.4
6.5
5.3
1,367
(1.5)
(20.6)
5.2
5.3
5.6
1.8
1.5
1.2
567
0.1
(23.9)
5.5
4.8
4.4
6.8
6.1
5.3
814
14.3
(38.6)
111.9
10.3
8.2
14.6
5.4
3.9
8,434
5.0
9.3
9.0
7.7
7.0
Note: Average is weighted by market cap; Priced 11 July 2012. Source: Bloomberg, CLSA Asia-Pacific Markets
11 July 2012
Big three to four
Chinese coal
Appendix 2: Summary financials

China Coal ...........................................................................................7
Shenhua Energy ...................................................................................8
Yanzhou Coal .......................................................................................9
11 July 2012
Chinese coal
Big three to four
China Coal financials

Income Statement (Rmbm)
11A
12CL
13CL
14CL
71,989
80,567
91,372
95,641
Coke
5,274
4,786
4,119
9,238
Mining Equipment
8,129
9,471
11,037
12,864
Others and inter-segment elim
2,382
696
462
276
Coal
87,773
Total revenue
95,521 106,990 118,020
(69,466) (76,885) (86,201) (98,097)
Cost of goods sold
Balance sheet (Rmbm)
11A
12CL
13CL
14CL
Cash & equivalents
32,174
18,402
8,647
9,950
Accounts receivable
13,446
13,913
15,101
16,260
Inventory
7,319
7,490
8,397
9,556
Other current assets
3,173
3,268
3,366
3,467
Total current assets
56,111
43,074
35,512
39,234
Net PP&E
60,224
87,728
Net intangibles
31,345
30,564
29,783
202
202
202
202
12,051
12,440
12,847
13,272
(4,574)
(4,692)
(5,148)
(5,561)
191
200
211
221
EBITDA
18,663
20,216
23,513
22,960
Other long-term assets
Depreciation & amortization
(4,740)
(6,071)
(7,661)
(8,378)
Total assets
EBIT
13,924
14,144
15,852
14,583
Accounts payable
622
455
243
167
(799)
(1,133)
(1,207)
(1,119)
295
309
325
341
SG&A
Other operating costs
Interest income
Interest expense
Others
Deferred Tax Assets
23,131
24,783
26,817
2,623
1,825
1,825
1,825
Other current liabilities
3,563
2,826
3,119
2,868
Total current liabilities
28,779
27,782
29,727
31,509
26,411
33,911
31,411
28,911
8,778
8,869
8,964
9,063
63,968
70,562
70,101
69,484
Ordinary share capital
13,259
13,259
13,259
13,259
Other common equity
68,486
75,099
83,185
90,170
Shareholders funds
81,745
88,358
96,443 103,429
Minority interest
14,220
15,088
159,933
174,007
6.17
6.66
14,042
13,776
15,214
13,972
Long-term debt
(3,383)
(3,444)
(3,803)
(3,493)
Other long-term liabilities
(857)
(868)
(958)
(880)
9,802
9,464
10,452
9,599
9,802
9,464
10,452
9,599
0.74
0.71
0.79
0.72
Post-tax exceptionals
Reported net income
EPS (basic) (Rmb)
Segment Gross profit
Coal
Coke
Total liabilities
Total liabilities & equity

13,486
13,984
15,495
13,513
(75)
46
(5)
427
174,007 182,591 189,839
22,593
Income tax
Core net income
29,002
Short-term debt
Pretax profit
Minorities
159,933
104,247 108,129
BVPS (HK$)
Mining Equipment
585
691
806
939
Operating parameters
11A
12CL
13CL
14CL
Raw coal production (m tonnes)
103
110
123
131
Operating profit before Tax
Cash flow (Rmbm)
11A
16,046
16,926
182,591 189,839
7.27
7.80
12CL
13CL
14CL
14,042
13,776
15,214
13,972
8,378
Coke production ('000 tonnes)
1.8
1.8
1.8
1.8
4,740
6,071
7,661
Coal sales (m tonnes)
100
106
120
127
Change in working capital
3,819
(184)
(528)
(368)
Coke sales (m tonnes)
1.8
1.8
1.8
1.8
Tax Paid
(3,213)
(4,181)
(3,511)
(3,745)
Others
(4,691)
(309)
(325)
(341)
345
366
393
416
Cash flow from operations
14,698
15,172
18,510
17,895
1,669
1,536
1,475
1,291
Cost assumptions
Unit coal COGs (Rmb/tonne)
Unit coke COGs (Rmb/tonne)
Coal ASP (Rmb/tonne)
Coke ASP (Rmb/tonne)
Capital expenditures
Acquisitions
Price assumptions
500
509
535
535
2,484
2,255
1,940
4,352
Disposals
Others
Cash flow from investments
(19,911)
(33,600) (24,206) (12,285)
(3,893)
42
806
806
806
(4,745)
(28,506)
(32,794) (23,400) (11,479)
Ratio analysis (%)
11A
12CL
13CL
14CL
New ordinary equity
Sales growth
24.9
8.8
12.0
10.3
Net Debt Movement
16,896
6,702
(2,500)
(2,500)
EBITDA growth
26.8
8.3
16.3
(2.4)
Dividends paid
(2,195)
(2,851)
(2,366)
(2,613)
Net income growth
31.3
(3.4)
10.4
(8.2)
Others
3,735
EPS growth
31.3
(3.4)
10.4
(8.2)
Cash flow from financing
18,436
3,850
(4,866)
(5,113)
Gross margin
20.9
19.5
19.4
16.9
Net cash flow
4,628
(13,771)
EBITDA margin
21.3
21.2
22.0
19.5
Free cash flow
(589)
Net profit margin
11.2
9.9
9.8
8.1
Earnings sensitivity (to +10% assump.)
ROE
12.6
11.1
11.3
9.6
Domestic contract coal ASP
ROA
6.9
5.7
5.9
5.2
Domestic spot coal ASP
Net debt/equity
(3.8)
19.6
25.5
20.1
DPS (HK$)
0.22
0.18
0.20
Dividend payout ratio
29.1
25.0
25.0
(9,755)
1,303
(16,259) (4,335)
6,011
12CL
13CL
14.2
15.3
12.9
12.3
Mining equip. margin +1%
0.6
0.6
0.18
Coal production volume
9.4
9.2
25.0
Unit coal production costs
(18.8)
(21.0)
11 July 2012
Chinese coal
Big three to four
Shenhua Energy financials

Net Coal Sales
11A
12CL
140,090
Power
Other Revenue
Total revenue
SG&A
14CL
140,482 152,733
154,825
Interest income
Interest expense
Others
Pretax profit
Income tax
13CL
14CL
Cash & equivalents
69,060
68,497
85,111 100,610
78,877
Accounts receivable
13,365
13,185
14,362
14,673
9,757
10,501
11,577
12,764
Inventory
12,628
13,006
14,455
15,253
221,477 241,251
246,465
12,884
13,271
13,669
14,079
(827)
(827)
(827)
(827)
83,874
88,402
93,442
91,292
(15,571) (17,526) (18,921) (20,569)
EBIT
12CL
76,941
(10,973) (12,101) (12,890) (13,462)
EBITDA
11A
70,494
(128,092)
58,348
208,195
Cost of goods sold
13CL
68,303
70,876
74,522
70,723
1,082
963
1,075
1,300
(3,218)
(2,835)
(2,500)
(2,248)
291
291
291
291
66,458
69,295
73,388
70,066
(13,951) (14,546) (15,405) (17,516)

107,937 107,959 127,597 144,614
Net PP&E
254,073 283,789 302,255 316,519
Net intangibles
Deferred Tax Assets
Total assets
3,596
4,064
4,438
4,781
933
34,538
35,748
36,986
38,252
401,077 431,560 471,276 504,166
Accounts payable
23,668
23,285
25,879
27,307
Short-term debt
16,389
16,389
16,389
16,389
47,492
49,808
52,374
55,754
87,549
89,482
94,642
99,450
Long-term debt
44,013
35,715
30,715
25,715
5,201
5,201
5,201
5,201
Minorities
(6,832)
(8,683)
(9,314)
(8,446)
Core net income
45,675
46,066
48,668
44,104
Total liabilities
Reported net income
45,677
46,066
48,668
44,104
Other common equity
205,932 234,097 264,339 288,975
2.30
2.32
2.45
2.22
Shareholders funds
225,822 253,987 284,229 308,865
EPS (basic) (Rmb)

Segment EBIT
Minority interest
Coal
57,628
60,928
63,957
9,839
9,739
10,082
9,354
BVPS (HK$)
11A
12CL
13CL
14CL
Cash flow (Rmbm)
Saleable coal production (Mt)
225
305
322
332
External coal sales (Mt)
234
323
341
347
89
Power
Internal coal sales (Mt)
59
61,205
19,890
38,492
19,890
47,175
19,890
56,489
19,890
64,935
401,077 431,560 471,276 504,166

11.35
12.77
14.29
15.53
11A
12CL
13CL
14CL
66,460
69,295
73,388
70,066
2,593
91
701
1,116
95
95
Gross power generation (MWh)
139,820
213,503 227,528
227,528
15,910
17,526
18,921
20,569
Power dispatched (MWh)
130,140
198,129 211,028
211,028
Others
13,352
17,235
18,630
20,278
70,665
73,346
77,801
75,142
Cost assumptions
Tax Paid
136,763 130,398 130,558 130,366
(11,740) (13,275) (14,917) (16,317)
Unit coal production cost
185
202
213
217
(44,972) (47,895) (37,945) (35,361)
Unit power gen cost
267
287
297
309
Acquisitions
(10,368)
50
185
185
185
3,062
Price assumptions
Disposals
Coal ASP (Rmb/t)
427
439
447
438
Others
Power tariff (Rmb/MWh)
334
356
365
374
Ration analysis (Rmbm)
11A
12CL
13CL
14CL
New ordinary equity
Sales growth
25.3
6.4
8.9
2.2
Net Debt Movement
(4,226)
(8,298)
(5,000)
(5,000)
EBITDA growth
19.2
5.4
5.7
(2.3)
Dividends paid (ord. & minority) (17,900) (17,901) (18,426) (19,467)
Net income growth
20.3
0.9
5.6
(9.4)
Others
EPS growth
20.3
0.9
5.6
(9.4)
(31,590) (26,199) (23,426) (24,467)
Gross margin
42.9
37.8
36.6
34.5
Net cash flow
(13,153)
(563)
16,614
15,499
EBITDA margin
45.9
39.9
38.7
37.0
Free cash flow
25,884
22,990
34,649
34,183
Net profit margin
25.1
20.8
20.2
17.9
Earnings sensitivity (+10% assump)
12CL
13CL
ROE
20.7
19.2
18.1
14.9
Domestic contract ASP
7.2
7.6
ROA
11.7
11.1
10.8
9.0
Domestic spot ASP
7.7
7.8
Net debt/equity
(5.4)
(6.5)
(13.4)
(18.9)
Power tariff
6.0
6.0
0.7
0.9
1.0
0.9
7.4
7.3
39.1
40.0
40.0
40.0
(9.1)
(10.0)
DPS (HK$)
Unit total coal cost
(52,228) (47,710) (37,760) (35,176)
(9,464)
11 July 2012
Chinese coal
Big three to four
Yanzhou Coal financials

Gross Coal Sales (Net prior to 09A)
Australian coal sales
Other revenue
Total revenue
Cost of goods sold
11A
12CL
13CL
14CL
36,592
41,295
44,231
46,535
9,353
10,709
11,475
13,129
1,120
1,024
1,054
1,061
47,066
53,029
56,760
60,725
(28,280) (35,790) (38,973) (42,397)
SG&A
(6,570)
(6,427)
(6,941)
(7,572)
11A
12CL
13CL
Cash & equivalents
17,689
16,192
11,605
3,696
Accounts receivable
10,937
12,433
13,139
13,886
1,391
1,928
2,100
2,284
414
425
435
446
30,431
30,977
27,279
20,313
Net PP&E
31,274
34,036
39,380
48,080
Net intangibles
26,241
Inventory
14CL
53
55
58
58
28,072
28,027
27,134
EBITDA
15,254
14,423
14,582
14,998
Deferred Tax Assets
1,335
(2,986)
(3,556)
(3,679)
(4,184)
6,040
6,130
6,224
6,323
EBIT
12,268
10,867
10,903
10,814
Total assets
Interest income
358
(839)
(996)
(884)
(734)
734
227
238
250
Pretax profit
12,521
10,098
10,259
10,331
Income tax
(3,545)
(2,727)
(2,770)
(2,789)
(48)
(150)
(367)
(556)
8,565
7,222
7,121
6,986
(363)
8,928
7,222
7,121
6,986
1.74
1.47
1.45
1.42
Interest expense
Others
Minorities
Core net income
Reported net income
EPS (basic) (Rmb)
Segment Gross profit
9,820
7,312
Australia coal business
3,718
2,512
11A
12CL
6,895
99,171 100,017 100,956
9,938
10,291
10,702
11,134
19,588
19,588
19,588
19,588
5,195
4,784
4,888
4,981
34,721
34,664
35,179
35,704
Long-term debt
14,869
12,369
7,369
2,369
4,236
4,244
4,253
4,262
53,827
51,277
46,802
42,335
4,918
4,918
4,918
4,918
Other common equity
37,716
42,134
47,089
51,939
Shareholders funds
42,634
47,053
52,008
56,857
691
841
1,208
1,764
Short-term debt

Total liabilities
Minority interest
Domestic coal and railway services

Accounts payable
97,152
5,921
2,624
3,816
BVPS (HK$)
8.67
9.57
10.57
11.56
13CL
14CL
Cash flow (Rmbm)
11A
12CL
13CL
14CL
10,270
10,098
10,259
10,331
4,184
Production (m tonne)
97,152
99,171 100,017 100,956
Domestic saleable coal production
41.3
46.1
50.6
57.0
3,575
3,556
3,679
Australia saleable coal production
9.6
16.2
17.8
21.0
(1,824)
(1,622)
(408)
(439)
Total saleable coal production
50.9
62.3
68.4
78.0
Tax Paid
(1,898)
(1,879)
(2,744)
(2,778)
YoY (%)
11.8
22.4
9.8
14.0
Others
(72)
(72)
(76)
(80)
11,218
235
251
281
307
64
60
62
63
Cost assumptions (Rmb/tonne)

Domestic unit cash cost
Australia unit cash cost (A$/tonne)
Price assumptions (Rmb/tonne)
Blended China coal ASP
Blended Australia coal ASP
10,051
10,081
10,709
(6,142)
(6,274)
(8,129) (11,990)
Acquisitions
(9,620)
58
(454)
Disposals
686
666
670
656
Others
930
662
644
622
(6,142)
(6,274)
Ratio analysis (%)
11A
12CL
13CL
14CL
New ordinary equity
Sales growth
38.7
12.7
7.0
7.0
Net Debt Movement
(2,500)
(2,500)
(5,000)
(5,000)
EBITDA growth
19.1
(5.4)
1.1
2.9
Dividends paid (ordinary & minor.)
(2,804)
(2,804)
(2,167)
(2,136)
Net income growth
16.8
(15.7)
(1.4)
(1.9)
Others
EPS growth
(3.8)
(19.1)
(1.4)
(1.9)
(5,304)
(5,304)
(7,167)
(7,136)
Gross margin
39.9
32.5
31.3
30.2
Net cash flow
(1,394)
(1,497)
(4,587)
(7,908)
EBITDA margin
32.4
27.2
25.7
24.7
Free cash flow
4,321
4,553
Net profit margin
18.2
13.6
12.5
11.5
Earnings sensitivity (to +10% assump)
ROE
21.4
16.1
14.4
12.8
Domestic contract ASP
ROA
10.1
7.4
7.2
7.0
Net debt/equity
39.3
33.5
29.5
32.1
Yancoal ASP
DPS (HK$)
0.57
0.44
0.43
0.43
31.4
30.0
30.0
30.0
Unit coal cost
Domestic spot ASP
(8,129) (11,990)
3,138
(194)
12CL
13CL
3.2
3.9
17.4
21.0
8.9
9.5
11.4
11.2
(21.3)
(26.4)
11 July 2012
Chinese coal
Big three to four
Companies mentioned
China Coal (1898 - HK$6.44 - OUTPERFORM)
Shenhua (1088 - HK$28.50 - BUY)
Yanzhou Coal (1171 - HK$11.40 - BUY)
Yitai Coal (N-R)
Key to CLSA investment rankings: BUY: Total return expected to exceed market return AND provide 20% or greater absolute return; O-PF: Total
return expected to be greater than market return but less than 20% absolute return; U-PF: Total return expected to be less than market return but
expected to provide a positive absolute return; SELL: Total return expected to be less than market return AND to provide a negative absolute return. For
relative performance, we benchmark the 12-month total return (including dividends) for the stock against the 12-month forecast return (including
dividends) for the local market where the stock is traded.
2012 CLSA Asia-Pacific Markets (CLSA).
Note: In the interests of timeliness, this document has not been edited.
The analyst/s who compiled this publication/communication hereby state/s and confirm/s that the contents hereof truly reflect his/her/their views and
opinions on the subject matter and that the analyst/s has/have not been placed under any undue influence, intervention or pressure by any person/s in
compiling such publication/ communication.
The CLSA Group, CLSA's analysts and/or their associates do and from time to time seek to establish business or financial relationships with companies
covered in their research reports. As a result, investors should be aware that CLSA and/or such individuals may have one or more conflicts of interests
that could affect the objectivity of this report. Regulations or market practice of some jurisdictions/markets prescribe certain disclosures to be made for
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27/04/2012
11 July 2012
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Chinese coal

Andrew Driscoll, CFA

Big three to four

Coal price scenario analysis

Comparing the big four

Big three to four

We are positive the

Big three coverage & Yitai Coal

The stocks are cheap on

Big three valuations

Source: CLSA Asia-Pacific Markets

Performance of the big

Share price performance

MSCI China Index

Bloomberg, Source: CLSA Asia-Pacific Markets

Amongst our ten largest

Top 10 coal miners: MoM performance

Top 10: YTD performance

Yanzhou Coal (32)

China Coal (6)

Peabody Energy (32)

Source: Bloomberg, CLSA Asia-Pacific Markets

Big three to four

Comparative analysis: Yitai Coal and the big three

A much lower H share

A smaller production base

A thermal coal play with

A shorter mine life on

Highest margins in the

Big three to four

Coal price scenario analysis

Base case assumptions

CLSA coal price forecasts

QHD Contract (Rmb/t)

Shanxi Coking coal (Rmb/t)

QHD Spot (Rmb/t)

Seaborne thermal (US$/t)

CLSA downside scenario

QHD Spot (Rmb/t)

QHD Contract (Rmb/t)

Shanxi Coking coal (Rmb/t)

Seaborne SSCC (US$/t)

China Coal (%)

Shenhua Energy (%)

EPS Change to base case

Yanzhou Coal (%)

China Coal (x)

Shenhua Energy (x)

Yanzhou Coal (x)

QHD Spot (Rmb/t)

QHD Contract (Rmb/t)

Shenhua Energy (x)

Shanxi Coking coal (Rmb/t)

EPS Change to base case

China Coal (x)

Shenhua Energy (x)

Yanzhou Coal (x)

Shenhua Energy (x)

Source: CLSA Asia-Pacific Markets

Big three to four

Appendix 1: Global coal valuations

Alpha Natural Resources

Indo Tambangraya Megah ITMG IJ

Guizhou Panjiang Ltd-A