What’s new
Hidili reported revenue of Rmb1,127mn in 1H11, +7.3% YoY; net profit of Rmb260mn and diluted EPS of Rmb0.13, -12.3% YoY, largely in line with our expectation of Rmb0.14.
Comments
Coal output fell 10.6% YoY and 38.5% HoH on production suspension due to local mine accidents in March and April, although these accidents did not occur in any of Hidili’s mines. As we expected, the company revised down its FY11 output guidance from 4.9mt to 4.2mt (implying 2.7mt in 2H11, +6.3% YoY and +72.7% HoH), and 2012 guidance from 6.0mt to 5.0mt, which we believe is more reasonable and achievable.
Margin declined 3.7ppt YoY and 5.9ppt HoH to 64.5%. ASP of clean coal increased 18.7% YoY and 19.5% HoH. Unit cost of raw/clean coal rose 7.7%/28.1% YoY and 27.2%/41.2% HoH, due to higher materials cost, lower production, low base in 2H10, as well as lower recovery ratio of clean coal from 52.1% to 42.4%. SGA expenses ratio fell 5.1ppt YoY and 6.8ppt HoH to 23.1%, due to its effective management reform and fee controls. We expect the trend to continue with the ramp up of more mines.
Financial cost increased 59.4% YoY and 22.8% HoH due to the Rmb1.71bn convertible bonds and the US$400mn senior notes. Output and earnings to gradually improve. With the production resumption of some existing mines and ramp up of new mines, growth will accelerate. Meanwhile, there are still new acquisitionopportunities with the ongoing resource consolidation in Guizhou. Earning Forecasts
Adjust earnings estimate and target price. We assume 2011/12volume to be 4.2/5.0mt, same as the new guidance; ASP to increase 21%/9%; cost to increase 14%/9%; and EPS of Rmb0.36/0.48.
Applying 2012 target P/E of 11.0x, we derive TP of HK$6.2.
Valuation and recommendation
Reiterate our view of a trading opportunity after interim results.
The stock has dropped 46% from its high since April 27th, and nowis trading at 9.8x/7.5x 2011/12e P/E, very attractive. Despite production disruptions, its growth outlook is still bright and resource expansion potential notable. The upcoming strong season of coking coal could provide support as well. If macro concerns alleviate to some extent with US QE3, some progress in resolving EU debt crisis, or China’s policy begins to show some easing signals, the trading opportunity would gradually emerge.