Shenhua switches focus from coal production to power plants

China Shenhua Energy concentrating on power generation, with flat coal sales targets

PUBLISHED : Tuesday, 01 April, 2014, 1:20am
UPDATED : Tuesday, 01 April, 2014, 1:20am


China Shenhua Energy, the listed unit of the nation's largest coal producer Shenhua Group, has set a flat target for coal and power output this year, and continues to shift the focus of its new projects from coal to power generation.

The strategy highlights the tough operating environment of the coal mining sector, which saw sharp falls in product prices and the closure of small and uncompetitive mines.

"Our strategy to increase investment in power plants as a proportion to our overall investment yielded good results last year," president Ling Wen said.

The company aimed to achieve coal output of 318.1 million tonnes and sales of 514.8 million tonnes this year, the same as its actual sales last year. Power output is targeted at 210.18 billion kilowatt-hours, also the same as last year's realised volume.

It has set a revenue target of 274 billion yuan (HK$345.22 billion), down 3.4 per cent from last year, while cost of sales is projected to be 2.6 per cent higher at 207.7 billion yuan. Selling and administrative expenses are expected to be 9.7 per cent higher at 13.5 billion yuan.

The targets mean China Shenhua is planning for a 23 per cent decline in pre-tax profit this year, wrote Barclays analysts in a note. They believe the firm could easily outperform the targets.

Last year, it outperformed its coal output target by 1 per cent, its coal sales target by 10.8 per cent, and power output target by 2.5 per cent.

After spending 28.8 per cent less than budgeted on projects to expand production and service capacity last year, the firm - an integrated coal miner and transport service provider, power generator and coal chemicals maker - aims to raise capital spending by nearly 5 per cent this year to 50.4 billion yuan.

Expenditure for coal mining is planned to drop to 6.96 billion yuan from 8.6 billion yuan spent last year and 13.9 billion yuan in 2012. Last year's spending was half the original budget.

Spending on power generation will rise to 19.5 billion yuan from 11.1 billion yuan last year, and 6.5 billion yuan in 2012.