Risun's 2020 results were turned around by a lucrative second half, when profit from coke surged; for the full year, shareholders' profit grew 24.7% yoy to RMB1,700 mn, beating our expectation, boosted by a 75.1% yoy increase in reportable result of the coke and coking chemicals segment; the refined chemicals segment incurred reportable loss of RMB20 mn in 2020, but the segment turned profit making in the second half with a reportable result of RMB45 mm
Risun's solid execution of expansion strategy, along with improved market conditions, provides a brighter earnings outlook for the years ahead. Risun s production capacity in both coke and refined chemicals is expected to grow considerably in the next few years, thanks to solid execution of expansion strategy since listing, and such expansion has recently been met with improved market conditions. In light of a better market outlook and Risun's latest expansion progress, we now forecast 2021-2023 shareholders' profit of RMB3,400 mn (revised up by 39.5%), RMB3J51 mn (revised up by 48.2%) and RMB4J29 mn, respectively.
Upgrade to "Buy*' with a TP of HK$6.00. Riding on the tide of industry consolidation driven by China's ongoing supply-reform and most recently the country's new climate pledge, Risun is set to become a high growth company with improved profitability over the next few years. Despite a recent stock price rally, Risun's valuation is still relatively low compared with its peers. We raise our TP price from HK$2.80 to HK6.00. Our new TP is based on a 2021 PE of 6.0x, which is at the lower end of the 6.0x-7.3x 2021 PE range among vertically integrated coal companies listed in Hong Kong.