A 1H17 positive profit alert with 143% to 192% NPAT YoY growth
China Coal published a positive profit alert after market close on July 24. Thecompany estimates its NPAT (PRC-GAAP based) for 1H17 should be in therange of RMB1.5bn to RMB1.8bn. The company made RMB616m for 1H16and thus the company should have NPAT improved 143% to 192% YoY. ChinaCoal’s positive alert only attributes the profit improvement to coal priceincrease YoY. The company will announce detailed 1H17 results by the end ofAugust.However, QoQ comparison might imply production cost inflation
A closer look of the 1H17 profit alert might lead to some disappointmentsabout the company’s margin trend. The company delivered RMB1.1bn NPAT(PRC-GAAP based) for its 1Q17 results. Thus, this profit alert should imply thatfor 2Q17, China Coal only made RMB400m to RMB700m NPAT. ThisRMB400m to RMB700m QoQ NPAT drop should be partially explained byprofit decline from coal chem segment for about RMB200m to RMB300m QoQ(resulting from chem products’ ASP and volume QoQ drops). With benchmarkcoal price being stable QoQ, the rest of the company’s NPAT QoQ drop shouldpotentially be explained by coal production cost inflation, if there’s nosignificant non-recurring loss accrued in 2Q17.
Awaiting more details of the results
While we believe the market might deem this profit alert negative, we do needmore details from the 1H17 results announcement to know the actual causesof the QoQ NPAT drop of China Coal. Currently, YTD QHD price (5500kcal,FOB, VAT-included) averages RMB611/t and is slightly higher than our full yearQHD price forecast at RMB610/t. Meanwhile, we budgeted 2% YoY productioncost inflation for China Coal while the 1H17 profit alert might imply ChinaCoal’s production cost inflation higher than 2% YoY.