BEIJING, Sep. 18, 2009 (Xinhua News Agency) -- Chinese broker Guotai Junan Securities newly gave a "cautious overweight" rating to Yanzhou Coal Mining Co., Ltd. (NYSE:YZC) (600188.SH; 1171.HK; YZC.NYSE) on its takeover bid for Australian coal company Felix, with a target A-share price of 22 yuan.
On September 14, Yanzhou Coal readjusted its financing plan for the acquisition of Felix, which will all come from bank loans weighing in 20 billion yuan. The loans will cost 1.2 billion yuan of newly added interest.
Besides, Yanzhou Coal's goodwill is expected to surge by 15.38 billion yuan.
Guotai Junan Securities hence estimated the net profit of Yanzhou Coal at 2.04 billion yuan in 2010. The acquisition will contribute 1.14 and 1.54 billion yuan to net profit in 2010 and 2011, and increase the EPS to 0.23 yuan and 0.31 yuan in 2010 and 2011, respectively.
If the acquisition succeeds, Guotai Junan said it will adjust its P/E prediction for Yanzhou Coal to 0.78 yuan, 1.1 yuan, and 1.18 yuan in 2009, 2010, and 2011, respectively.
However, the depreciation appraisal caused by slow resource expansion will be reconsidered. Therefore, Guotai Junan gave a "cautious overweight" rating to Yanzhou Coal with a target price at 22 yuan, representing P/E of 20-times.
The takeover price for Felix is 19.851 billion yuan. The proven coal reserves to be taken over are about 132 million tons. The acquisition assets include four operating coalmines, two coalmines now in development, and three coal exploration projects.
However, the acquisition has to wait for further approval by both the Chinese and Australian governments. Besides, Yanzhou's coal is mainly traded in the spot market, and is sensitive to coal price fluctuations. If coal prices drop, the performance of Yanzhou Coal may be lower than expected.
