VAT Cut Is a Positive to Chinese Coal Producers; While Our Bearish Coal Price Outlook Remains.
China will lower the value-added tax, or VAT, rates as part of a CNY 2 trillion cost cut package to support the slowing economy and tariff dispute with the U.S. This favors Chinese coal producers, who will enjoy a 3% VAT rate cut to 13% on domestic coal production. We expect the VAT rate cut to boost net profits by 4%-10% for the major coal producers we cover, after taking into account the cost-side VAT rate cuts. Among these, we think China Coal is best positioned to benefit with estimated 8%-1...China Shenhua Energy and its subsidiaries are engaged in the production and sale of coal; the generation and sale of power; and providing transportation services in the People's Republic of China (the "PRC"). Co. operates coal mines as well as an integrated railway network and seaports that are used to transport Co.'s coal sales. The primary customers of Co.'s coal sales include power plants and metallurgical producers in the PRC. Co. also operates power plants in the PRC, which are engaged in the generation and sale of coal-based power to provincial or regional electric grid companies.
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