Keqi coal-to-gas project officially signed contract with CNPC, with fixed supply price of RMB2.75/m3 for 3 years (2014-2016). The price was close to the average price of the natural gas in Beijing, in-line with expectation. Keqi project may record net loss in FY14, but it is expected to be quite profitable after 2015. Due to the high unit capacity investment for phase 1, the profitability of phase 1 of Keqi project might be relatively low.
We estimate the unit net profit of Keqi project in FY14/15/16 might be RMB -0.214/0.187/0.368 per m3, implying the profitability of Keqi project would be quite significant after 2015 as it might generate approximately RMB1.5billion net profit every year.
Slightly raise the coal price assumption for FY13-15. We believe the coastal thermal coal price will start to fall after Dec 2013, mainly due to coal consumption decrease during the Chinese new year period, and coastal power plants increase of the overseas coal purchase since Nov and these coal supplies are expected be delivered in Dec and Jan. As a result, we only slightly revise up the average QHD5,500Kcal thermal coal price assumption for FY13/14/15 from RMB580/t to RMB590/600/620 per ton.
Revise up rating to “Accumulate” and raise TP to HK$4.00, which represents 9.3x/12.4x/10.1x FY13/14/15 PER.