This summer, factors such as persistent large-scale high temperatures across China and economic recovery growth have driven a continuous rise in electricity demand nationwide. Simultaneously, the dry weather has led to insufficient hydropower generation, resulting in ongoing significant pressure on thermal coal supply.
Externally, the EU's coal embargo on Russia has taken effect. The EU is now increasing its efforts to purchase coal from countries like South Africa to fill market gaps, heightening concerns about tight global thermal coal supplies and keeping prices elevated.
China Shenhua (01088) is benefiting not only from the surge in thermal coal demand but also from its recent reinstatement as one of the blue-chip stocks, which will support its share price. The company was included as a blue-chip constituent in 2007 but was removed two years ago in August. It has now been reselected, with a weight of 0.65%, and is expected to attract passive fund inflows over 2.1 days, boding well for continued upward momentum in its stock price.
The current prolonged high temperatures in China are making it difficult to improve power supply. According to domestic media reports, Sichuan's originally scheduled industrial power restrictions, set to end on August 20, have been extended by five days until 24:00 on August 25, reflecting a further increase in thermal coal demand.
China Shenhua's current expected P/E ratio is approximately 6.4 times, the highest among the three major state-owned coal stocks. However, considering its market capitalization of HKD 81 billion, also the largest, along with its blue-chip status, there remains room for upside. Investors can buy at HKD 23, target HKD 26, and stop loss if it breaks below HKD 21. (The author is an investment strategist at Guotai Junan International, a licensed person under the Securities and Futures Commission, and does not hold shares in the aforementioned stock.)