China Shenhua Energy shares soared 16.3% to an 18-month high on Monday after it announced a record dividend payout of 59 billion yuan ($8.55 billion) on surging profits and coal prices.
China’s largest coal producer by volume, state-owned Shenhua declared Friday a final dividend of 0.46 yuan per share, in addition to a special dividend of 2.51 yuan per share — its first since 2009 — after posting its first annual profit growth in four years. The biggest beneficiary of its big dividend payout is its ultimate parent, the Chinese government.
Shenhua, which also operates coal-fired power plants and railways, saw its net profit reach 24.9 billion yuan in 2016, up 41.1% on the year. Revenue also grew 3.4% to 183.1 billion yuan on the back of resurgent coal prices following the government’s bid to curb industrial overcapacity.
The size of the dividend, far surpassing Shenhua’s net profit, nonetheless spurred concerns over the group’s financial conditions. But citing its abundant cash, low debt level and the need to “reward” shareholders, Shenhua denied speculation about state intervention in its dividend policy.
“This is solely based on our group’s own decision, rather than suggestions from the government or regulators,” Vice-chairman Ling Wen said at an earnings briefing in Hong Kong on Monday. Shenhua’s retained earnings swelled to 153 billion yuan at the end of December, he said, adding that the group would maintain a payout ratio of about 40%.
Shenhua is 73% owned by parent Shenhua Group, which is wholly owned by the State-Owned Assets Supervision and Administration Commission of China’s State Council, making the state its majority shareholder. Shenhua has 17% of its shares floated on the Hong Kong market and the remaining on the Shanghai bourse.
Ling was speaking on behalf of Chairman Zhang Yuzhou, who was said to be absent due to an urgent meeting held in Beijing among the heads of state-owned enterprises. When pressed for details, Ling said he was not “authorized” to speak about the meeting.
Shenhua also made a rare apology for China’s air pollution. “As I can see some of you are wearing facial masks today, I would like to express my deep sympathy for this,” said Ling, admitting that the coal and power generation industry was under “pressure” due to China’s worsening smog.
Deutsche Bank expects a re-rating of Shenhua because of its “concrete shareholder returns” that translated into a 20% dividend yield last year. Others like Macquarie and Morgan Stanley reiterated their “neutral” rating for Shenhua. Macquarie forecast that its impairment loss would grow, after a similar loss of 2.8 billion last year to upgrade its power generation assets amid environmental concerns. Read more
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