德意志银行-中国乙醇行业深度研究(1)

GEMS:AsiaChinaEnergyOil&Gas2August2006China'sdrivetoalternativefuelsChristinePu,CFAResearchAnalyst(86)[e-mail],CFAResearchAnalyst(86)[e-mail]–excitingbutlongroadaheadWeseetheChinesegovernment'sgrowinginterestinrenewableandalternativefuelsourcesasprimarilydrivenbythepersistentlyhighcrudeoilpricesanditsincreasingrelianceonimportedoil.Whilstthepolicy-driveninitiativescouldleadtoanevolvingenergyconsumptionstructureinthelongrun,wedonotexpecttheroadtoalternativefuelstobeasmoothonegivensocial,economicandtechnologicalissues.Wewouldliketoplaytheemergingthemethroughtraditionalnameslikeoilandcoalstocks.DeutscheBankAG/HongKongAllpricesarethosecurrentattheendoftheprevioustradingsessionunlessotherwiseindicated.PricesaresourcedfromlocalexchangesviaReuters,Bloombergandothervendors.DataissourcedfromDeutscheBankandsubjectcompanies.DeutscheBankdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Thus,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.Independent,third-partyresearch(IR)oncertaincompaniescoveredbyDBSI'sresearchisavailabletocustomersofDBSIintheUnitedStatesatnocost.CustomerscanaccessthisIRat(0386.HK),HKD4.34Buy2005A2006E2007EP/E(x)7.37.67.2EV/EBITDA(x)5.04.74.3Price/book(x)1.61.51.3PetroChina(0857.HK),HKD8.66Buy2005A2006E2007EP/E(x)7.89.19.1EV/EBITDA(x)4.25.35.3Price/book(x)2.22.52.2YanzhouCoal(1171.HK),HKD5.56Buy2005A2006E2007EP/E(x)11.28.88.0EV/EBITDA(x)4.53.73.1Price/book(x)1.41.41.2ShenhuaEnergy(1088.HK),HKD13.84Buy2005A2006E2007EP/E(x)10.213.410.7EV/EBITDA(x)7.08.87.1Price/book(x)2.84.73.1Risingdependenceonimportedoil050100150200250300350199719981999200020012002200320042005Mt15%20%25%30%35%40%45%ChineseapparentdemandChineseimportsImportsas%ofdemandCompanyResearchIndustryFocusEthanol–fastergrowthaheadbutprobablywithacostSinceitsintroductioninJune2002,theblendingof10%ethanolintogasolineismandatedinfiveprovincesand27selectivecitiesinanotherfourprovincesofChina.Thegovernmentintendstoraisefuelethanolconsumptionfrom1Mtcurrentlyto2Mtin2010andfurtherto10Mtin2020.However,thehighproductioncostforcorn-basedethanolandartificiallylowrefinedoilpricesinChinaentailheavygovernmentsubsidyforethanolproduction,whichamountsto40%ofsalespricecurrently.Thefoodsafetyconcernhasalsoledthegovernmentandtheindustrytolookfornon-grainfeedstockforethanolproduction,whichmaybeslowtoevolveintomassproduction.DME–potentiallyaviableclean-burningalternativefuelforChinaDME,achemicalderivativeofmethanol,isaclean-burningalternativetoLPGanddieselandhasamongthelowestemissionsofcarbondioxideandparticles.GiventheabundanceofcoalinChinaandrelativecompetitivenessofcoal-basedDME,thegovernmentseemstoreckonthatdevelopingDMEisaviablepartofitsenergystrategy.However,giventheconstraintsfromcapitalcosts,waterresourcesandinfrastructure,thelarge-scaleuseofDMEinChinamaystilltakethreetofiveyears.Investmentimplications/valuation/riskWedonotexpecttheincreasingconsumptionofalternativefuels,eitherethanolorDME,tohavemajoranimpactonChineseoilcompaniesbefore2010F.TheparentsofSinopec(0386.HK)andPetroChina(0857.HK)havetakenstakesinfuelethanolproducers,andthetwodominatetheethanolblendinganddistribution,whichcouldpotentiallybenefitfromtheincreasingsalesofethanol.Shenhua(1088.HK),Yanzhou(1171.HK)andCNOOC(0883.HK)arepotentialDMEplayers.DBhasBuyratingsonallthesestocks.WevalueourChineseoilandcoalstocksbyusingDCFmodels.Theprincipalrisksarelower-than-anticipatedoilprices.2August2006Oil&GasEthanolinChinaPage2DeutscheBankAG/HongKongTableofContentsInvestmentthesis..............................................................................3Outlook.....................................................................................................................................3Investmentimplications............................................................................................................3Valuationandrisks....................................................................................................................3Ethanoldynamics..............................................................................4Fuelethanolcurrentlymeets2%ofChina’sgasolinedemand.................................................4Goingrenewable–Excitingbutbumpyroadahead...................................................................4Benefitsoffuelethanolaremulti-faceted.................................................................................6Problems,barriers&issues......................................................................................................7Newtechnologiescouldusherinanewperiodofethanolproductionbuttakesometimetomature...............................................