Coal producer China Shenhua surges on huge special dividend payout

Shares of China Shenhua Energy, the listed flagship of the nation’s largest coal producer, Shenhua Group, jumped as much as 20.2 per cent after its board declared a dividend payout of more than double its net profit for last year.

The firm announced late on Friday that it would pay a final dividend of 46 fen per share – up 43.8 per cent from 2015 – besides a special dividend of 2.51 yuan.

The total payout for 2016 amounts to 59.1 billion yuan (US$8.6 billion), 237 per cent of the company’s net profit for the year, and 32.4 per cent of its 153.8 billion yuan in retained earnings accumulated since it was listed in 2006.

“The board considers that the debt to assets ratio of the company is comparably low in the industry,” Shenhua Energy said in a filing to the Hong Kong stock exchange. “[In] recent years, the capital expenditure of the company has decreased...and in the near future, the operation cash inflow of the company will be positive.

“Without prejudice to the healthy and sustained development of the company, the board proposes the above [dividend payout] proposal to offer a better return for investors.”

State-owned Shenhua Group owns 73 per cent of Shenhua Energy and will therefore receive the lion’s share of the special dividend payout.

Vice chairman Ling Wen told reporters on Monday that the decision to make the special payout was not made under pressure from any government authorities. Ling said the company would from now on maintain its long-standing policy of paying dividends equivalent to about 40 per cent of its annual profit.

Shenhua Energy Monday closed 16.3 per cent higher at HK$19.14. The Hang Seng Index gained 0.8 per cent. The share price peaked at HK$19.78 at 9.35am.

Net profit grew 41.1 per cent to 24.9 billion yuan last year, unchanged from the preliminary figure the firm announced late in January. Revenue rose 3.4 per cent to 183.1 billion yuan.

Operating profit from coal mining surged 173 per cent to 16.1 billion yuan from 2015 on the back of an 8.2 per cent rise in the average self-produced coal price and an 11 per cent drop in the production cost per tonne, thanks to a reduction in outsourcing.

Operating profit from power generation slumped 43.3 per cent to 10 billion yuan despite a 4.5 per cent rise in output, due to higher coal costs and an 8.1 per cent fall in selling prices amid increased competition and excess supply.

Shenhua Energy had 41.2 billion yuan of cash at the end of last year, having generated 81.9 billion yuan of net cash from operating activities.

Its total debt-to-shareholders’ equity ratio stood at 22 per cent at the end of the year.

The firm has budgeted for 35 billion yuan of capital expenditure this year, higher than the 29.4 billion yuan spent last year. More than half of last year’s total was spent on building power plants.

It spent 35.4 billion yuan in 2015 and 44.8 billion yuan in 2014.

The outlay last year was higher than the 20 billion yuan planned, due to payments for the mining rights for three mines and the acquisition of land use rights for a coal dock in Zhuhai, Guangdong.

Shenhua Energy is aiming to raise coal output by 2.8 per cent to 298 million tonnes this year, and to reduce power output by 2.7 per cent.

Senior vice president Wang Jinli said the firm expects contract coal prices to fluctuate this year within the 500 to 570 yuan per tonne range, guided by Beijing. Spot market prices averaged 593 yuan early this month, according to the Bohai Rim coal price index.

The company expects its net profit to jump at least 50 per cent year-on-year in the first quarter, thanks to higher coal prices.

Meanwhile, Ling said Shenhua Energy is setting up a carbon emission management unit to keep track of its total emissions of the greenhouse gas, carbon dioxide. The new unit will also plan for Beijing’s roll-out of a policy to use market forces to cut emissions in the next few years.

Beijing plans to impose caps on emissions, allocate emissions quotas and compel companies to trade quotas among themselves, to incentivise reduction.