Recurring 1H16 beat DBe, in line with market consensus
Yanzhou Coal announced 1H16 results after market closed on 27 August. Thecompany’s revenue was RMB12.6bn, down 31% YoY and HoH, achieving 37%of FY16 DBe and Bloomberg consensus. Its 1H16 NPAT came in at RMB375mcompared to RMB51mn net loss in 1H15. Excluding government grants ofRMB445m and gain from securities to associate of RMB105mn, Yanzhou isstill in a loss-making position. Yanzhou’s recurring results including investmentincome were slightly better than FY16DBe, in line with market expectation.
Self-produced coal ASP and unit cost both declined
Self-produced coal ASP in 1H16 declined by RMB6/t, worse than QHD pricetrajectory. However, we see ASP will improve in 2H16, according to our coalprice outlook. Though negatively affected by shrinking sales volume in 1H16,Yanzhou still managed to cut average unit cost of self-produced coal byRMB6/t to RMB326/ in 1H16. We see significant cost cut from YancoalAustralian, the unit cost of which decreased by RMB60/t HoH.
Concerns on negative operating cash flow and heavy CAPEX remain
Yanzhou recorded a negative RMB77mn operating cash flow and total cashdecreased by RMB5.3bn. Despite that, Yanzhou will continue to increaseCAPEX in the 2H16. Total CAPEX in 1H16 was c. RMB2.5bn and this will beincreased to RMB6.9bn. The newly-estimated annual CAPEX was reset toRMB9.4bn from RMB8.5bn previously. Yanzhou decided to invest more in itsShandong operations from RMB998mn to RMB1,798mn.
Improving outlook in 2H15, but concerns remain, Hold maintained
We believe Yanzhou’s 2H16 results should be better than that of 1H15, basedon our coal price outlook. However, concerns on negative cash flow and heavyCAPEX remain. Hold maintained.