Already expecting to beat targets again in FY12. The Company targets290mn tons commercial coal production, 411mn tons coal sales and199.6mn kwh dispatched power output. However, the Management statesthat based on the production and sales volume in Jan-Mar12, they believethey can beat the targets. They believe actual coal production volume willbe 290-300mn tons, and sales volume will be 411-425mn tons.

Targeting to further raise spot sales ratio slightly. The Company targets236.5mn tons spot sales out of 410.5mn tons planned domestic sales inFY12, which means spot sales ratio will be slightly raised to 57.6% from55% in FY11. Sales of coal purchased from third party in FY11 was about105mn tons and that business achieved gross profit margin of around 9.7%.

Nonetheless, the Management warns that due to lower coal price in FY12ytd, GP margin of third party coal sales is significantly lower than FY11.

Cost control will be more challenging in FY12. The Company set asame cost control target as FY11, which is to limit per unit production costincrease to lower than 10%. Nonetheless, upward pressure in productioncost is higher than last year. Fuel & material cost as well as labor expensescontinue to rise, and the PRC government has imposed new safety measuresfor coal mines starting from Feb12 this year. The Management believesthat they can still limit cost increase to lower than 10% if Central and localgovernment do not further implement additional taxations.

Cut TP to HK$40.1 from HK$42.8, maintain BUY. We apply newassumptions on sales volume and cost for both coal and power segment,and come up with new FY12 and FY13 EPS of RMB2.38 and RMB3.09,which are down 6.3% and 3.7%, respectively. We maintain our target PERat 14x and cut TP from HK$42.8 to HK$40.1. With 21.4% upside potential,we maintain BUY.

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