2018 results slightly beat expectation
Yanzhou Coal-H’s 2018 revenue and net profit rose 28% and 17% YoYto Rmb67.4bn and Rmb8.6bn （Rmb1.75/sh）， slightly above ourexpectation due to lower financial expenses in 4Q18. It proposed acash dividend of Rmb0.54/sh, about 31% of H-share attributable netprofit. Yanzhou Coal-H’s 2H18 revenue and attributable net profitclimbed 18.4% and 1.2% YoY to Rmb35.2bn （+9.3% HoH） andRmb3.96bn （-14% HoH）。
Commercial coal output was 95.1mnt in 2018 （+19% YoY） and24.1mnt in 4Q18 （-6% YoY and +7% QoQ）。 ASP of self-produced coalwas Rmb542/t in 2018 （+10% YoY with +3% in China and +15% atYancoal Australia） and Rmb544/t in 4Q18 （+6% YoY and -3% QoQ）。
Sales cost of self-produced coal were Rmb252/t in 2018 （+16% YoY）and Rmb262/t in 4Q18 （+13% YoY and -4% QoQ）。 SG&A expense rose15% YoY to Rmb10.7bn in 2018 due to increasing sales volume ofYancoal Australia and Rmb1.02bn in provisions for changes in socialsecurity contributions. Operating cash flow rose 50% YoY toRmb18.2bn in 2018 and capex totaled Rmb10.8bn.
Trends to watch
The company guides sales volume of self-produced coal at 100mnt（+6.8% YoY） and capex at Rmb9bn in 2019. We expect seasonalweakening in thermal coal price in near term, and forecast thermalaverage coal price will drop 8% in 2019.
Earnings forecast
We cut our 2019 A/H-share EPS forecasts 9% and 4% to Rmb1.56 andRmb1.51, and introduce 2020 forecasts at Rmb1.60 and Rmb1.59.
Valuation and recommendation
Yanzhou Coal-A is trading at 7.1x and 6.9x 2019e and 2020e P/E, andYanzhou Coal-H at 5.0x and 4.7x. Maintain HOLD for A/H-share.
Maintain A-share TP at Rmb12.5 （8.0x and 7.8x 2019-2020e P/E and13% upside）； cut H-share TP 10% to HK$9 （5.3x and 5.0x P/E and 5%upside）。
Risks
Disappointing coal demand and/or coal prices.