Preliminary NPAT of RMB350mn——520mn in 1H16China Coal announced a profit alert of 1H16 on 11 July, 2016. A preliminaryNPAT of RMB350mn——520mn for 1H16 was reported. The company explainedthe reasons for profitability improvements as: 1） increasing coal price, 2）improving product structure, 3） cost control and 4） disposal of non-primary andlow profitable operation assets.
　　One-off disposals of non-primary assets may contribute the majority of profitThe profit alert of 1H16 implied a bottom line of RMB570——750 in 2Q16. In ourview, the coal price hike in 2Q helped China Coal improve its profitability, but itis unlikely to turn the profitability of concurrent operations to the positive.
　　Average QHD5500 coal price hike from RMB372/t in 1Q16 to RMB385/t in2Q16 may only contribute c.RMB200——260mn profit to China Coal's bottom linein 2Q16 on our estimates. As such, we believe the majority of positive bottomline improvements in 2H16 are highly likely to be attributable to potential oneoffasset disposals announced in April, including 1） selling 100% shares ofXuzhou Sifang Aluminum Group to Datun Energy Group 2） Selling 100%Handan Coal Equipment to Beijing Equipment, 3） 91% and 100% equityinterest of ChinaCoal Jiuxin and Lingshi Chemical to China Coal Import andExport Company.
　　Positive on short-term coal price trend, Hold reiterated on valuationWe have adjusted upwards our short-term coal price forecast in June andbelieve China Coal should trade at 0.6x PB, （see our report “”Hot“ Summer forCoal, policies to trigger upgrades”, published on 23 June 2016） but retain ourlong-term cautious view on coal's trajectory in 2018 and 2019. ConsideringChina Coal is trading at HK$4.22 now, this implies c.0.6x PB,and we reiterateHold on the shares.