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Industry Report Excerpt
February 3, 2009
1. Event:
Under relaxed coal supply & demand atmosphere, “gaming of important contract coal” develops in a
direction conducive to thermal power. Coal price decline will help earning in electrical power sector recover
against the cycle; thus this sector is upgraded to “Cautious”.
2. Our Analysis and Estimation
1) Electricity d
emand remains weak under the “L
-
type” economic growth.
 According to macro-research of Galaxy Securities, due to gloomy real estate investment and industrial
overcapacity (“inventory” in a broad sense), it’s difficult for total investment to recover high growth despitethe government’s Rmb4tn public investment program; circumscribed by slipping overseas demand, exp
ort isunlikely to revive in the short term. Meanwhile, GDP acceleration will keep sluggish in the first 3 quarters of
2009, with “L
-
type” economic growth maintained and predicted 2009 GDP acceleration lowered to 8.1%.
Accordingly, we hold that electricity d
emand remains weak under the “L
-
type” economic growth and thus
lower electricity demand acceleration in 2009 to 4.1%.2) Coal supply & demand is slack and coal price tends to fall.
We deem that coal price is likely to keep dropping from March; “gaming of important contract coal” will still
be finally determined by supply & demand and is developing in a direction conducive to thermal power. Weare pessimistic about the coal price for the following reasons:Although recent generating capacity enjoys week-on-week rally, electricity demand in 1H2009 will keepweak. Furthermore, as winter ends, seasonal demand on coal will die down and the slack seasonapproaches.Because domestic coal suppliers are very scattered, it is hard to uniformly curtail the production for long time.In addition, coal-
miners will successively resume work after the Spring Festival and “natural production
-
cut”
factor by the festival will disappear. So the overall production curtailment will become more difficult.Relaxed supply is also embodied on the transportation link. At present, national transportation capacity issufficient and coal enjoys smooth circulation, which weakens the production curtailment effect in local areas.International economy suffers downturn and exterior energy supply & demand is rich. Feasibility of coal
“import substitution” grows continuously.
 
3. Investment Suggestion
Coal price decline and financial cost reduction will boost profitability in electrical power industry against thecycle. We up-regulate i
ndustry rating to “Cautious” and favor power companies with strong price bearing
By Zou Xuyuan 
Relaxed Coal Supply & Demand AtmosphereFavorable to Thermal Power --- Cautious
 
 
 Report ExcerptPage 2/3
capacity and those in areas of smooth coal circulation. Investment portfolio: Huadian Power International(600027), Huaneng Power International (600011), Shenyang Jinshan Energy (600396) and GuangdongBaolihua New Energy Stock (000690), etc
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