【研究报告内容摘要】
We expect coal prices to gradually trend higher in2014 as the industry begins to work through itsspare production capacity. We maintain ourAttractive view on China and Indonesia Coal, withShenhua and ITMG our top picks.
Coal inventory now at more normalized level. Whilewe expect this year’s average coal prices to be slightlylower vs. 2013, we believe coal prices will gradually pickup over the course of 2014. In our view, spot coal pricesare unlikely to test the lows seen in 3Q13. In addition torising demand, we note that the coal inventory held byChinese IPPs is now at a more normalized level.Digesting spare production capacity is the focus in 2014.We estimate there is at least 12% spare productioncapacity in the system that needs to be digested so as totighten up the supply and demand balance.
China – Supply has responded accordingly. Webelieve China demand will see 5% growth in 2014against a production increase of 3%. Whileenvironmental concerns and rail capacity expansion areoverhangs, we believe supply (driven by focus onmargins) has and will continue to respond accordingly tohelp balance the market. Shenhua is our top pick in theindustry, given its earnings resilience vs. peers. Currentshare price also offers 5% dividend on relativelydefensive earnings helped by Shenhua’s non-coalbusiness in offsetting coal price volatility.
Indonesia – Domestic demand offsets risks inexports. Like the Chinese producers, we forecastIndonesia will see only a 5% increase in 2014 production,significantly below the 17% average in 2005-12. Weexpect domestic demand growth of 9% to outpaceexport growth of 4%, driven by progress of PLN’sCrash-Power program. Within the Indonesian space, weprefer ITMG, given its strong cash position and costcontrol measures. In our view, ITMG’s strong strip ratiocuts will offset soft 2014 ASP. ITMG is currently tradingat 7.3x 2014E PER, the lowest among its peers. Its cashposition should allow for an 80-85% dividend payoutratio, which translates to a 12% yield at the current price.