What's new
　　On October 17, Yancoal Australia released operating data for 3Q24:
　　Output in 3Q24 recovered to the historical high level: Attributable commercial coal output rose 10% YoY and 24% QoQ to about 10.20mnt, flat with output in 3Q24 and reaching a historical quarterly high. Most major mines reported YoY and QoQ growth in 3Q24. On a 100% basis, commercial coal output was up 15% YoY and 24% QoQ to 6.1mnt at Moolarben, up 4% YoY and 12% QoQ to 4.7mnt at Mount Thorley Warkworth, and flat YoY and up 67% QoQ to 4.5mnt at Hunter Valley Operations.
　　Sales volume rose at a double-digit pace in 3Q24: Attributable sales volume of self-produced commercial coal rose 20% YoY and 21% QoQ to about 10.4mnt, with thermal coal sales volume up 16% YoY and 18% QoQ to 9mnt (accounting for 87%) and coking coal sales volume up 56% YoY and 40% QoQ to 1.4mnt.
　　Selling price fell in 3Q24: The comprehensive selling price of self- produced commercial coal was AUD170/t, down 14% YoY and 6% QoQ. Specifically, the selling price of thermal coal was down 12% YoY and 4% QoQ to AUD157/t (market price of 5,500kcal coal was down 1% YoY and 2% QoQ, and market price of 6,000kcal coal in 3Q24 was down 5% YoY and up 4% QoQ). The selling price of coking coal fell 28% YoY and 19% QoQ to AUD259/t (the market price of prime coking coal at Australia’s Peak Downs fell 19% YoY and 23% QoQ in 3Q24).
　　Cash reserves consolidated further. As of 3Q24, cash balance rose AUD430mn QoQ to AUD1.98bn.
　　Yancoal Australia maintains its annual guidance of 35-39mnt of attributable commercial coal production, cash operating cost of AUD89- 97/t, and attributable capex of AUD650-800mn.
　　Comments
　　Incremental cost reduction to pay off: Coal output in 3Q24 was better than we expected, reflecting its smooth progress in production recovery. Against this backdrop, we expect the firm’s coal cost per tonne to decline.
　　Overall, we are upbeat on the firm’s full-year output and cost guidance, and expect incremental cost reduction to pay off.
　　Coal prices to remain high in 4Q24: As of October 11, price of Newcastle 6,000kcal coal was US$148/t, the highest level YTD, US$91/t for 5,500kcal Australian coal, and US$207/t for coking coal at
　　Peak Downs.
　　Looking ahead, we expect thermal coal prices to remain relatively high in the near term as expectations for tightening energy supply and demand are rising amid intensifying global geopolitical conflicts. In addition, as China steps up counter-cyclical policies, we expect steel demand to improve marginally, supporting coking coal prices.
　　Financials and valuation
　　We keep our 2024 and 2025 earnings forecasts unchanged. The stock is trading at 7.6x 2024e and 6.4x 2025e P/E for H-shares. We maintain our OUTPERFORM rating and target price at HK$38.00, implying 8.8x 2024e and 7.5x 2025e P/E for H-shares, offering 17% upside.
　　Risks
　　Disappointing project progress and cost reduction; sharper-than-expected decline in coal prices.