1Q19 results beat our expectations
1Q19 revenue rose 49% YoY to Rmb48.2bn and attributable net profitgrew 3.6% YoY to Rmb2.3bn （Rmb0.47/sh）。 Recurring attributable netprofit rose 2.9% YoY to Rmb2.2bn. Earnings beat our expectationthanks to higher realized sales prices.
Output of commercial coal was 23.19mn tonnes in 1Q19 （-4.5% YoYand -4% QoQ）。 Coal ASP rose 8% YoY to Rmb596/t with that ofself-produced coal at Rmb568/t （+8% YoY and +4% QoQ）。 The firmoutperformed the QHD coal price （-14% YoY and -4% QoQ） thanks torising sales prices of coking coal in China and higher Australianthermal coal prices. Unit sales cost of self-produced coal wasRmb255/t （+10% YoY and -2% QoQ） due to rising costs at Erdos.
Financial expense was Rmb811mn in 1Q19 （-6.3% YoY and +543%QoQ）， and financial expense ratio was 1.7% （-1ppt YoY and +1.4pptQoQ）。 The proportion of minority interest declined 4.6ppt YoY to24%.
Trends to watch
Coal market to remain stale in near term. Coal demand has recentlydeclined. Daily coal consumption at the six major IPPs stabilize at600kt with inventory at 24 days. Some IPPs have started maintenanceand repairs. Looking ahead, we expect coal transport capacity torecover, though import remains uncertain. As a whole, we do notexpect thermal coal price to sharply decline before the peak season.
Earnings forecast
Maintain A-share 2019-2020 EPS forecast at Rmb1.56 and Rmb1.60,and H-share forecast at Rmb1.51 and Rmb1.59.
Valuation and recommendation
Yanzhou Coal-A is trading at 7.2x and 7.0x 2019e and 2020e P/E, andYanzhou-H at 4.8x and 4.6x P/E. Maintain HOLD for YanzhouCoal-A/H and TP at Rmb12.5 （8.0x and 7.8x 2019e and 2020e P/Ewith 12% upside） and HK$9 （5.3x and 5.0x 2019e and 2020e P/E with9% upside）。
Risks
Disappointing coal demand and/or coal prices.