2024 results beat our expectations
　　Yancoal Australia announced its 2024 results: Revenue fell 12% YoY to AUD6.86bn and net profit attributable to shareholders fell 33% YoY to AUD1.22bn or AUD0.92 per share, mainly due to falling coal prices. In 2H24, attributable net profit fell 5.9% YoY but rose 90% HoH to AUD796mn. The firm’s results beat our expectations, as the firm booked net foreign exchange gains of AUD149mn YoY amid the depreciation of the AUD.
　　1) Coal prices declined. In 2024, as coal supply and demand conditions eased and overseas coal prices continued to fall, the firm’s comprehensive selling prices fell 24% YoY to AUD176/t, with the price of thermal coal down 24% YoY to AUD160/t and that of coking coal down 22% YoY to AUD276/t.
　　2) Output increased. As business operations improved, the firm met its annual output guidance of 35-39mnt in 2024, with equity commercial coal output rising 10% YoY to 36.9mnt. 3) Unit cost decreased. Thanks to rising output, the firm’s cash operating cost (excluding royalties) of coal fell 3.1% YoY to AUD93/t in 2024, meeting its annual guidance of AUD87-97/t, and its total cash operating cost declined 6.0% YoY to AUD110/t. 4) Capex rose 13% YoY to AUD705mn in 2024, in the lower-middle range of the firm’s annual guidance of AUD650-800mn. 5) Strong cash reserves. As of end-2024, the firm had AUD2.46bn cash on hand and AUD2.35bn net cash. 6) The firm continued to reward shareholders and proposed distributing a dividend of AUD0.52/sh in 2024. Based on net profit, the firm’s dividend payout ratio stood at 56% in 2024, about 6ppt higher than the level in 2023.
　　Trends to watch Output and cost guidance for 2025 intact. According to the
　　announcement, the firm’s guidance for the coal output of mines in which it holds stakes is 35-39mnt, and guidance for cash operating cost of coal excluding royalties is AUD89-97/t, remain unchanged with its 2024 guidance. The firm guides AUD750-900mn of capex for 2025, higher than its 2024 guidance, which we think may mainly include the spending rolled　　over from 2024 to 2025.
　　To date (February 21), coal supply has been relatively loose. Coal prices averaged US$112/t for NEWC thermal coal, US$79/t for API5 thermal coal, and US$191/t for coking coal at Peak Downs mine, down 12%, 15%, and 38% from 1Q24. Given the firm’s large earnings upside, we expect falling coal prices to weigh on its earnings. However, if the firm can improve its output and lower costs, we anticipate its earnings to remain resilient.
　　Financials and valuation
　　Due to lower assumptions for coal prices and higher assumptions for costs, we lower our 2025 and 2026 net profit forecasts by 26% and 19% to AUD846mn and AUD805mn. The stock is trading at 9.1x 2025e and 9.3x 2026e P/E. We maintain OUTPERFORM. As the firm’s earnings were affected by falling coal prices but its dividend yield remains attractive, we cut our TP 18% to HK$31, implying 9.6x 2025e and 9.8x 2026e P/E, offering 5.6% upside.
　　Risks
　　Weaker-than-expected recovery in demand; unexpected increase in industry supply; slower-than-expected recovery in Yancoal’s output.