3Q17 results strongly beat consensus
China Shenhua released its 3Q17 results after market close on October 27. For9M17, the company generated revenue of RMB182.5bn, reaching 77.1% ofFY17DBe and 79.0% of full year Bloomberg consensus. Shenhua continued todeliver impressive NPAT of RMB38.6bn. This strongly beats consensus byachieving 92.2% of 2017 full year consensus and is slightly ahead of DBe byachieving 77.8% FY17DBe. For 3Q17 alone, Shenhua's NPAT was RMB12.3bn,7.9% decline QoQ. We believe it's mainly due to a slowdown of coalproduction volume resulting from the temporary halts of its Borixile/Haerwusuopen-cut mines. Yet, the impact seems to be minimum and below marketexpectation.
9M17 improvements across all segments
For 9M17, Shenhua's coal sales volume, total power output dispatch, totalrailed transportation, and shipping volume increased by 13.9%, 12.8%, 14.9%,and 22.6%, respectively, on a YoY basis. Coal ASP improved 49.1% YoY whileunit production cost down 1.6% YoY. ASP for power improved 1.6% YoY butunit cost up 21.6%. For transport business, Shenhua continues to grow itsrevenues from external customers aggressively （57.6% YoY for railways and26.4% for ports）， yet not enough cost breakdown on this. Overall, we thinkShenhua's operations continue to be stable and maintain operationalexcellence.
Cheap cash generator; Buy reiterated
For 9M17, Shenhua has generated c.RMB65bn free cash, implying annualizedFCF yield almost 30% based on current share price. Meanwhile, Shenhua isrunning at annualized ROE over 15%. Current share price implies only c. 1xbook value and c. 6x 2017DBe NPAT. With our view that QHD coal prices willstay at high level until meaningful capex being invested into the sector （detailsin our China coal industry research "Higher for longer – reiterate Buy on coalsector" published on August 2, 2017）， we believe Shenhua is cheap. This isalso consistent with our recent Shenhua deep dive research "Mispriced goodassets; we upgrade TP and reiterate Buy" published on 9 October 2017. Buyreiterated for China Shenhua.