FY2015 Results appears to beat DBe and consensus
Yanzhou Coal reported FY15 results after market close on 29 March 2015. Thecompany’s revenue under IFRS at RMB36.4bn was down 40% YoY, achieving106% of Bloomberg consensus. Company’s FY15 NPAT (under IFRS) ofRMB164mn, RMB0.03/share, is better than DBe (net loss of RMB663mn) andBloomberg consensus (RMB490mn net loss). Meanwhile, its revenue under theChina GAAP was reported at RMB68bn, up 4.03% YoY with a NPAT ofRMB860m, down 60% YoY. The company suggested a cash dividend ofRMB0.01/share. There is a big revenue gap between IFRS and GAAP; we willwait for management to comment during the analyst meeting. Yanzhou Coal’sbook value shrank by RMB3.35bn, a larger loss than net-loss forecasts of DBe(RMB663mn) and Bloomberg consensus (RMB490mn).
Book value continued to shrink
Although Yanzhou Coal had a close to breakeven NPAT for FY15, better thanBloomberg consensus’ expectation, we are still concerned about its shrinkingbook value. Yanzhou Coal recorded RMB4bn loss on exchange differencearising on translation of foreign operations, and therefore, aggregatecomprehensive loss for FY2015 arrived at RMB3.9bn. As such, its equityattributable to shareholders continued to decline to RMB35bn, down 8.7%YoY. We believe the company’s actual value may be unable to be correctlyderived from company’s reported NPAT.
Good operational results, but sustainability remains to be seen
Yancoal Coal’s sale volume decreased 29% YoY, but its self-produced coalsales volume only dropped 9% YoY. The company managed to increase coalsales in 2H15, up 3% HoH. Yanzhou Coal appears to have impressively cut unitcost by c.RMB100/t in FY2015, while its ASP dropped by RMB67/t. However,as the company recorded the impact of currency exchange beyond bottom line,we are unable to assure the credibility of cost reduction dominated in RMB. Atthe same time, we are also concerned about the sustainability of cost cuts. Thepace of cost reduction has slowed significantly. In 1H15, the company hadsuccessfully cut production cost by RMB81/t to RMB307/t. However, YanzhouCoal only cut unit production costs by RMB6/t to RMB301/t in 2H15.
Challenge remains, unattractive valuation; reiterating Sell
We maintain our cautious view on China coal industry in 2016 as so far wehave not seen significant improvement in supply and demand balance.Considering Yanzhou Coal has been continuing to lose its book value(RMB7.20/share as of FY2015), current trading price of HK$3.96, the closingprice on 30 March, implied a trailing PBx at 0.45x or a 12-months forward PBxat c. 0.49x-0.51x. If we assume Yanzhou Coal’s FY2016 book value will furthershrink 5%-10% YoY, the stock is not cheap. Sell reiterated.