CHINA SHENHUA ENERGY(01088.HK)：1H19 RESULTS IN LINE WITH PREANNOUNCEMENTS; SOLID PERFORMANCE
1H19 results in line with preannouncements
China Shenhua announced that Shenhua-A’s revenue dropped 8.6%YoY to Rmb116bn in 1H19, attributable net profit grew 5.5% YoY toRmb24.2bn （or Rmb1.22 per share）， recurring net profit fell 1.5% YoYto Rmb22.7bn, in line with preannouncements. Shenhua-H’sattributable net profit dropped 1.1% YoY to Rmb24.2bn. In 2Q19,Shenhua-A’s attributable net profit rose 2.8% YoY to Rmb11.7bn（-7.4% QoQ）， and Shenhua-H’s dropped 7.6% YoY to Rmb11.4bn（-11.6% QoQ）。
Comments: 1） Commercial coal production dipped 0.3% YoY to145mnt in 1H19, slipping 0.3% YoY to 74mnt in 2Q19 （+3.4% QoQ）。
1H19 sales of self-produced coal dropped 2.3% YoY to 142mnt.
2） 1H19 coal ASP dropped 28% YoY to Rmb420/t in 1H19, sliding0.3% YoY to Rmb429/t in 2Q19 （+4.4% QoQ）。 3） Cost of self-producedcoal dropped Rmb2.5/t YoY to Rmb110.9/t in 1H19. 4） Power outputand sales rose 1.3% and 1.4% in 1H19. Railway turnover and shippingfreight volume climbed 3.1% and 6.2% YoY, while shipping turnoverdropped 0.9% YoY. 5） Financial expenses dropped 47% YoY toRmb949mn in 1H19, thanks to decreased net interest expenses, whileG&A expenses fell Rmb557mn YoY thanks to decreased salaries.6） 1H19 OCF rose 28.5% YoY to Rmb41bn, or dropped 2.4% YoY toRmb34.2bn excluding Shenhua’s financial company.
Trends to watch
Healthy balance sheet and strong cash flow. As of end-June,Shenhua’s net cash totaled Rmb81.1bn, equal to 20% of total equity,up Rmb13.2bn vs. end-March. 1H19 capex was Rmb7.2bn, comparedwith Shenhua’s full-year guidance for capex at Rmb27.1bn.
Financials and valuation
We maintain our 2019e-20e EPS estimates for A-shares at Rmb2.30and Rmb2.32, and H-shares at Rmb2.32 and Rmb2.37. H-shares aretrading at 5.7x 2020 P/E, while A-shares are trading at 8.1x 2020 P/E.
For H-shares we maintain a NEUTRAL rating and TP of HK$19.00（7.2x 2020 P/E）， offering 25.7% upside from the current price. Inaddition, for A-shares we maintain a NEUTRAL rating and TP ofRmb20.00 （8.6x 2020 P/E）， offering 7.0% upside from the currentprice. Risks: Sharper-than-expected decline in coal prices.
