1H16 earnings turned positive and beat DBe and consensusChina Coal announced 1H16 results after market closed on 24 August. Thecompany’s revenue was RMB26bn, down 12% YoY and 11% HoH, achieving43% of FY16 DBe and 48% Bloomberg consensus. Its 1H16 NPAT came in atRMB225mn compared to RMB1,072mn net loss in 1H15. Excluding nonrecurringincome from asset disposal of RMB994mn, China Coal should be innet loss of about RMB600mn. Relative to FY16 DBe and Bloomberg consensusat net loss of c. RMB1.5bn, China Coal’s results beat the expectations.
　　HoH turnaround mainly due to cost reduction and disposal gainWhile QHD average coal price is flat HoH in 1H16, China Coal made c.
　　RMB2.4bn loss before tax in 2H15 and then turned around to RMB290m PBTin 1H16. The turnarounds are mainly attributed to （1） RMB35/t unit cost cutHoH resulting in c.RMB1.4bn PBT improvement; （2） one-off disposal gain（mainly from coal chem segment） at RMB994mn. While impressed by thecompany’s dramatic cost cutting, we think the sustainability of the low costsremains to be seen. While RMB20/t transportation cost drop is well expected,co-existence of 18% HoH production volume drop and 8% production cost cutis truly impressive.
　　Hold maintained on mixed outlooks
　　Assuming China Coal is able to maintain its low cost in 2H16 and assumingQHD price remains at RMB480/t for the rest of the year, China Coal might beable to make RMB1.2bn for the full year 2016. That’ll translate to only about1.5% ROE in 2016. The stock is currently trading at 0.5x 2016 DBe PBx, wethink the positive should already be in the price. Also, we are concerned aboutpotential government relaxation for China’s coal supply control. As such, wemaintain our Hold rating.