Much has been made about the adoption of green energy throughout the world. Meetings are held, regulations are discussed and emissions targets are set as nations strive to make the world a cleaner place.
While there’s little doubt that clean sources of energy must be found for humanity to survive in the long term, the pace of adoption has been slower than most would like. This is especially true in China, which is notoriously polluted and reliant on coal to serve its 1.3 billion inhabitants.
Beijing is well aware of this problem and has taken many steps to move toward clean energy, but it’s simply not cost or resource effective for the world’s second largest economy to shift from coal to wind farms, solar panels and hydroelectricity over a short period of time.
Daqin Railway Company Limited (SHA: 601006), the owner of one of China’s largest rail networks responsible for the transport of coal from mines to power plants, is aware of both China’s heavy reliance on coal over the short and medium term, as well as the shift that will inevitably occur over the long term.
Daqin Railway Positioned for the Present and Future
The main source of Daqin’s income is its 653km rail network from the coal mining center of Datong to the port city of Qinhuongdao, which is responsible for the transportation of over 500 million tons of coal.
Not only has the volume of coal which Daqin transports increased almost exponentially over the last decade from only 20 million tons in 1995 and just 200 tons in 2005, but Daqin has used the monopoly it has to its advantage, gradually increasing the fees it charges over time.
While China continues to use more coal every year despite its efforts to go green, resource transportation is not Daqin’s only business. The company’s over 1000km of rail systems in total consists of high-speed commuter rails and general cargo transport, and its reliance of coal continues to decrease.
China Needs Coal: It’s That Simple
China is polluted, everyone knows it, and Beijing especially knows it. With that said, China’s emissions are not expected to peak until around 2030. Progress takes time in a country so large, and while China is not ignoring its problems, it is realistic about the time it will take to solve them.
Daqin Railway’s long-term business plan is in line with the strategic goals of China. With a low P/E ratio of under 10, a strong dividend yield of above 5%, healthy ROE/ROA, and a growth model supported by economic fundamentals, buying its stock is a good way to invest in China’s growth now that it’s trading below its summer highs.
The recent opening of the Hong Kong-Shanghai Stock Connect allows individual foreign investors to buy shares listed in mainland China for the first time. A brokerage account in Hong Kong is now more useful than ever, giving access to all companies on the Shanghai Stock Exchange including Daqin Railway.