Yanzhou Coal Industry Announces Second Round of Larger Incentive Plans
Yanzhou Coal (YANCOAL) announced a restricted incentive plan for A-shares. It plans to grant 62.98 million restricted shares to incentive targets, accounting for 1.29% of the company's total share capital. The plan grants incentives to 1,268 people.
This is the second round of Yancoal's incentive plan after stock option incentives in February 2019 (46.32 million stock options were granted to 499 incentive recipients). We note that since the last stock options plan, the company has made special dividend allocations, injections of the Group's main assets, and pledges of a high percentage of cash dividends.
We believe that this round of broader incentive plans will further bind the interests of the company to management and core key personnel, thereby stabilizing profits and dividends. Maintain the “buy” rating and maintain the profit forecast and target price of HK$16.20, corresponding to 3.5 times the 2022 EPS forecast. The 21-23E EPS is 4.01/3.81/4.10 yuan.
The restricted stock grant price is 50% lower than the current share price
The grant price of restricted shares is $11.72 per share, which is 50% lower than Yancoal's current A-share price (closing price of $23.72 on December 1, 2021). The sales limit period and sale restriction cancellation ratio of this incentive plan were 24 months (33%), 36 months (33%), and 48% (34%) from the date the restricted stock registration was completed, respectively. The first/second/third evaluation of the lifting of sales restrictions requires earnings per share of not less than $1.60/$1.74/1.87 (after deduction). According to our calculations, earnings of 1.6 yuan per share reflect the average annual price of thermal coal in the spot market of 500 yuan/ton. We think that the lower price limit is safe (currently the market price of 5,500 thermal coal in Qinhuangdao is at the level of 1,090 yuan).
The medium-term market outlook is strong, and the company's profits are expected to be stable
As stated in our annual coal strategy report “1H22 Pressure Released; 2H Supply and Demand Tightened Again” released on November 22, 2021, although the supply and demand prospects for the 1H22 industry are bleak, we are optimistic about the fundamentals of thermal coal in the medium term. The main support comes from: 1) Demand growth in the power sector and the modern coal chemical sector will each contribute 240 million tons and 182 million tons of new consumption during the 2021-2025 period; 2) Under the carbon neutrality target, new projects are limited after 2022, and new projects are approved It is unlikely that supply will come to a standstill. Therefore, we expect the price of thermal coal to fall slightly to 850 yuan/ton in 2022 and then rise to 1,000 yuan/ton in 2023, and the company's net profit is expected to remain stable.
Risk warning: Industry supply expansion exceeds expectations; demand falls short of expectations.