2015 was a year where the fall of Chinese stocks and crude oil prices stole the limelight. Losing more than half of its price at the beginning of the year, crude oil prices shocked the world and drove away many investors from investing in the energy sector.
The energy sector in general was shunned by many because of the decline in coal prices as well, ending the year 2015 at barely over $40 per short ton. One of the main reasons behind the fall of both oil and coal prices is the overcapacity taking place globally.
However, the reasons why are not that important. What matters is that with current prices, consumption of these resources could potentially jump back up again bringing the sector into better shape. This is especially possible due to reports that traditional power sources like oil, gas, and coal will still be playing a significant role in the world economy even though there is tremendous growth in the renewable energy sector.
With this discouraging news, many of the players in the sector has seen their stocks fallen – possibly to the degree of being called undervalued. InvestAsian believes that China’s Shenhua Energy Company Limited (SHA:601088) is one of them.
The Biggest Coal Company in China
Established in 2004 and listed in 2007, Shenhua Energy is a world-leading coal-based energy company. Its main businesses include the production and sales of coal, railway and port transportation of coal-related materials, as well as power generation and sales. It is also the country’s largest coal supplier and vendor with the largest coal reserves. The company prides itself on its model of large-scale, highly efficient, and safe production in the Chinese coal industry.
Shenhua is one of very few energy companies still managing to make a profit, even though just a bit less, due to the recent events. Still expecting an impressive net profit margin of 15.6%, just a slight drop from last year’s 18.7%, the company is enduring hard times gracefully and will be looking to lead the recovery wave should the rough times end.
It’s strong financial performance has led it to make the best returns in the industry. Boasting a ROI and ROE of above 13%, it is leading the industry with the closest competitor at 11%.
Lowest P/E, Highest Dividends in the Energy Sector
In addition to giving its shareholders a great deal with its returns, Shenhua also has a P/E ratio of just above 8 and a dividend yield of 5.38%, both of which are the best in the industry.
Currently trading at only 13.75 CNY per share, a fraction of its former price which peaked at 25 CNY just a few months ago, Shenhua is a strong buy.
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 Julong and GRG.