GS--China Daily Insights_20060522(PDF10)

Shenergy (U): New share issue is roughly NPV-neutral, but helps finance the company's growth strategy, Franklin Chow, CFA
• Shenergy (600642.SS, Rmb6.43, Rmb5.60, U) has announced it is issuing no more than 200 mn shares at Rmb5.92, the average closing price of the last 20 trading days. We are broadly neutral on the share issuance, which was expected by the market but was delayed by restrictions on new equity fund raising during A-share market non-tradable share reform.
• While the new issue reduces short term gearing for Shenergy, the share dilution from the issue has a net neutral impact on our valuation.
• We have cut our EPS estimates for 2006 and 2007 by 4% and 6%, respectively, to reflect the share issuance but our DCF-based target price of Rmb5.6 remains unchanged (we use a 10% discount to NPV for all Chinese IPPs).
• Our main concern on the stock is the declining utilization rate in Eastern China and gas shortage for its pipeline business.
Shanda (IL): Virtual items
..............................