Upgrade from SELL to contrarian BUY in anticipation of moderate coal price increases (5% to YE 2014; 10% to YE 2015) and additional state support for the ailing sector.
Raising TP from HKD3.25 to HKD5.50 on 0.6x P/BV (0.4x previously), given our forecast of a higher ROE on rising net profit beginning late 2H14 driven by domestic coal prices.
We downgraded CC to SELL in Jan on forecast lower coal prices and EPS, and for a 2nd time we cut EPS below consensus. Now the coal market is rebalancing and prices bottoming. For higher alpha, pair this with a SELL on steel.