1H24 results miss our expectation
　　Yancoal Australia announced its 1H24 results: Revenue fell 21% YoY to AUD3.14bn. Operating EBITDA fell 46% YoY to AUD990mn. Net profit dropped 57% YoY to AUD420mn, or AUD0.32 per share. The 1H24 results miss our expectations, mainly due to higher-than-expected coal cost.
　　Comments:
　　1) Output rose YoY in 1H24 but fell QoQ in 2Q24. In 1H24, attributable saleable coal output rose 18% YoY to 17mnt, and sales volume of attributable self-produced coal grew 17% YoY to 16.9mnt. In 2Q24, output fell 4% YoY and 7% QoQ to 8.2mnt, and sales volume rose 1% YoY and 4% QoQ to 8.6mnt.
　　2) Coal prices fell from high levels, in line with our expectations. In 1H24, the comprehensive selling price of self-produced salable coal fell 37% YoY to AUD176/t, with the selling price of thermal coal down 39% YoY to AUD156/t and that of coking coal down 18% YoY to AUD319/t. In 1H24, the spot price of NEWC coal was down 36% YoY to US$132/t, that of 5,500kcal Australian coal fell 20% YoY to US$91/t, and that of semi-soft Australian coking coal was down 12% YoY to US$231/t.
　　3) Cost per tonne of coal declined at a milder pace than we expected. In 1H24, cash cost (excluding royalties) fell 7% YoY to AUD101/t.
　　4) In 1H24, gross profit of coal fell 59% YoY to AUD60/t, and operating EBITDA fell 54% YoY to AUD59/t.
　　5) In 1H24, the firm recorded operating cash flow of AUD851mn and capex of AUD286mn, with net cash at AUD1.42bn as of end-June.
　　6) The firm maintains its capex guidance of AUD650-800mn, and expects its capex in 2024 to be close to the lower end of the guidance range.
　　7) The firm did not declare an interim dividend for 1H24. We think the retained earnings may be mainly used for potential strategic development opportunities.
　　Trends to watch
　　1) The firm maintains its 2024 attributable salable coal output guidance at 35-39mnt, and its 2024 cash operating cost (excluding royalties) guidance of AUD89-97/t. We expect the firm to further reduce costs by increasing output in 2H24.
　　2) Overseas natural gas and coal prices have rebounded since July 2024, reflecting the supply disruptions amid geopolitical conflicts and demand recovery. Against this backdrop, we expect overseas energy prices to remain high in 2H24, boosting the firm’s earnings recovery.
　　3) According to corporate filings, the firm’s free float ratio was 29.56% as of June 30, close to the requirement that individual stocks should have a free float ratio of at least 30% for inclusion in the ASX200. If the firm is added to the ASX200, we expect its liquidity to improve further.
　　Financials and valuation
　　We cut our 2024 and 2025 earnings forecasts by 14% and 10% to AUD1.07bn and AUD1.21bn due to lower production assumptions and higher cost assumptions. The stock is trading at 8.4x 2024e and 7.2x 2025e P/E for H-shares. Maintain OUTPERFORM rating. Based on our 2025 earnings forecast revisions, we cut our target price by 10% to HK$38 for H-shares, implying 8.9x 2024e and 7.6x 2025e P/E and offering 5.8% upside.
　　Risks
　　Sharper-than-expected decline in demand; disappointing cost reduction.