YAL will release its 2Q23E operating data on 19 Jul and 1H23E earnings in mid- Aug. We expect net profit to drop 12% YoY to A$1.52bn in 1H23E, as the gradual volume growth was more than offset by a decline in coal price. We revised down our 2023E/24E earnings forecast by 27%/29%, after cutting our coal price assumptions by 15%16%. Our NPV-based TP is revised down to HK$42 (from HK$48), due to (1) the dividend paid in Apr (HK$3.74 per share) and (2) our lower earnings forecast. We maintain our BUY rating as we do not expect further significant decline in seaborne coal price versus our new assumptions, given the potential recovery of China’s economy. We also expect China’s import of Australian coal to accelerate following the lift of import ban early this year. In terms of valuation, even with our new earnings forecast, the stock is trading at only 21% 2023E dividend yield (assuming 50% payout ratio) and 2.4x 2023E P/E.
　　Expect a reverse of ASP and volume trend in 2Q23E. In 1Q23, the　attributable coal sales volume dropped 24% YoY while ASP increased 35% YoY. In 2Q23E, we expect the sales volume to grow 22% YoY given the gradual improvement of water storage issue. On the ASP side, we expect the ASP of thermal coal in 2Q23E to drop 30% YoY but outperform the GCNewc 6,000kCal benchmark (-54% YoY). We expect the ASP of metallurgical coal to drop 33% YoY in 2Q23E. We expect the overall decline in ASP will be less than that of the benchmark, underpinned by some contract pricing.
　　1H23E earnings preview. We forecast the revenue to drop 6% YoY in 1H23E. Given that we expect the unit operating cost (ex-royalties) to stay high in 1H23E (A$98/t, +15% YoY), we forecast the net profit to drop 12% YoY to A$1.52bn.
　　Australian coal miners to benefit from recovery of China’s import.Following the improved relationship between China and Australia, China’s import of Australian coal has gradually recovered. According to the China Customs, import of Australian thermal coal in Mar/Apr/May reached 1.8mt/3.7mt/5.1mt, representing 12%/22%/27% of China’s total thermal coal import. Still, such percentage is far lower than the peak level of 50% in 2018. We expect the import from Australia will further accelerate. Australian miners, including YAL, will benefit from the potential volume growth.
Key risks: (1) further decline in coal price; (2) increase in unit cost; (3) unfavourable weather that affects production.