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Shenhua Profit Rise Misses Market Expectations
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China Shenhua Energy Co Ltd posted an 11.8 percent increase in its net profit for 2006, lagging behind market expectations due to a falling net profit margin.

Shenhua's profit reached 1.75 billion yuan in 2006, although revenue increased 18.7 percent year-on-year to 64.2 billion yuan.

The company was apparently struggling with a declining net profit margin of 27.2 percent, compared with the previous year's 29.9 percent.

Shenhua said commercial coal production by volume climbed 13 percent last year to 136.6 million tons, compared with total production of 2.32 billion tons on the mainland last year.

The mainland's largest coal producer would continue to complete two to three acquisitions of its parent company's assets this year, its chairman Chen Biting said yesterday.

"We have several deals in discussion at the moment, of which two to three may become a reality by the end of the year. Progress does not directly relate to the results of the listed company," said Chen.

"But in consideration of shareholder interests, it is preferable to inject mature assets into the listed company," he added.

He stressed that the main hurdle the company faced was the restructure of assets rather than its lukewarm results.

The parent group currently owns five coal projects with a total production capacity of 56 million tons. Chen did not rule out the possibility of acquiring coal liquefaction projects from the parent company.

The coal liquefaction projects are scheduled for completion by the end of 2007. Annual capacity of the first production line would amount to 1.08 million tons.

"Apart from the asset injection, we are seeking acquisition opportunities overseas. For the domestic market, we aim to acquire good quality players to consolidate our leading position."

To consolidate underlying assets and upgrade technology in coal mining, Chen said Shenhua planned to invest 27.4 billion yuan as capital expenditure for this fiscal year, up 11 percent.

The company aimed to realize commercial coal production exceeding 200 million tons by 2010. Further, it expected railway transport capacity and port shipment capacity to reach 200 million and 140 million tons in 2008.

With tightening market supply, Chen expected the coal price would remain high in the short term. "The unit cost of coal stayed flat in the previous year, hovering at 131 yuan per ton. But it still has room to fall in the light of the drop in transport costs," said Chen.

Shenhua exported a total of 23 million tons of coal in 2006. Chen said the company would continue to enlarge its export capacity.

Shenhua's Hong Kong-traded shares closed at HK$19.96 yesterday, falling HK$0.19 or 0.94 percent.

(China Daily March 27, 2007)

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