1H20 earnings in line with forecast
Yanzhou Coal Mining announced 1H20 results: Yanzhou Coal-Arevenue rose 3.4% YoY to Rmb109.6bn, but net profit attributable toshareholders fell 14.2% YoY to Rmb4.6bn （or Rmb0.94/sh）。 YanzhouCoal-H revenue rose 6.3% YoY to Rmb35.3bn, but net profitattributable to shareholders fell 21.7% YoY to Rmb4.55bn （orRmb0.93/sh）。 In 1H20, the company’s recurring net profit attributableto shareholders fell 55% YoY to Rmb2.26bn, in line with our forecast.
We attribute the YoY decline in earnings to falling coal prices and lowdomestic production of washed coal. In 2Q20, Yanzhou Coal-A’srevenue rose 10.9% YoY and 40.4% QoQ to Rmb64bn, and net profitattributable to shareholders grew 0.7% YoY and 101% QoQ toRmb3.07bn, mainly because the firm received investment income ofRmb3.4bn from the Moolarben joint venture after gaining controlover the joint venture in 2Q20. Yanzhou Coal-A’s recurring net profitattributable to shareholders fell 71% YoY to Rmb0.81bn in 2Q20.
Comments: Production and sales volume of self-produced coal up in1H20. ASP of the company’s domestic self-produced coal and itsself-produced coal in Australia fell 19.0% and 20.5% YoY in 1H20.
Yanzhou Coal-A’s sales cost of self-produced coal was Rmb264/t in1H20. The firm’s G&A expenses rose 11% or Rmb0.22bn YoY, but itsfinancial expenses declined by 20% or Rmb0.27bn YoY in 1H20.
Excluding Yankuang Finance, the firm’s operating cash flow declinedRmb3.19bn YoY to Rmb5.58bn in 1H20.
Trends to watch
Coal prices to stop falling and stabilize. As companies are resumingproduction, we believe coal demand from downstream industries willrecover. Meanwhile, the government has not eased restrictions oncoal imports. We expect coal prices to stop falling and stabilize.
Financials and valuation
As the firm’s investment income grew YoY and we have revisedestimates on coal prices, we raise 2020 and 2021 net profit forecastsby 28% and 3% to Rmb7.5bn and Rmb6.2bn for its A-shares, andraise 2020 and 2021 net profit forecasts by 27% and 5% to Rmb8bnand Rmb7bn for its H-shares. The firm’s A-shares are trading at 6.1x2020e and 7.3x 2021e P/E, and its H-shares are trading at 3.3x 2020eand 3.8x 2021e P/E. For its A-shares, we maintain NEUTRAL rating butraise TP 11% to Rmb10 （6.6x 2020e and 7.9x 2021e P/E, 8.5% upside）。
For its H-shares, we maintain NEUTRAL rating but raise TP 7.7% toHK$7 （3.8x 2020e and 4.4x 2021e P/E, 17% upside）。 Risks:
Worse-than-expected declines in coal prices.