2022 results are in line with market expectations
The company announced 2022 results: revenue of HK$8.215 billion, +16% year on year; net profit of the mother was +7.0% yoy to HK$2,715 million, corresponding to a profit of HK$0.54 per share. 2H22's revenue was HK$3,552 million, and net profit to the mother was HK$1,109 million, -41%/-31% year-on-year. The company's performance was in line with market expectations. The increase in performance in 2022 was mainly that coking coal prices remained high. The decline in 2H22 performance was mainly a decline in coking coal prices and a decline in the company's coal production and sales.
Comments: 1) The average price of coking coal has risen throughout the year. The average price of refined coking coal in 2022 was +19% to 2,402 yuan/ton (including VAT), and the average price of Liulin #4/#9 coking coal market was +13%/+24% year-on-year to 2714/2415 yuan/ton during the same period. The average price of 2H22 fine coking coal was -11%/-2.8% year-on-year. 2) Production and sales of refined coal increased slightly. Raw coking coal production in 2022 was +1.5% year on year to 5.25 million tons, and refined coking coal production was +0.9% year on year to 3.23 million tons. In 2022, 100% of raw coal was washed, and the refining rate of refined coal was -0.4ppt to 61.5% over the same period last year. 3) In 2022, the company's #4/#9 coal sales accounted for 27%/73%, respectively, and the company expects this share to remain relatively stable in 2023. 4) Increased cost of production per unit. In 2022, the unit production cost of original coking coal was +25 yuan/ton to 404 yuan/ton. After deducting the impact of depreciation and amortization and uncontrollable costs (resource tax, etc.), the production cost of raw coking coal increased by +7 yuan/ton to 227 yuan/ton compared to the same period last year, mainly labor, raw material costs and building maintenance costs. 5) Sales expenses in 2022 were +29% year on year to HK$349 million, and the sales expense ratio was +0.4ppt to 4.2% year on year, mainly due to increased sales of refined coal and increased sales of fire and sea freight, which led to increases in logistics costs, etc. 6) By the end of 2022, the company had free capital of approximately HK$7.236 billion at its disposal. Among the available funds, bank balances and cash amounted to HK$6,014 million, and the amount of usable notes receivable amounted to HK$1,222 million. 7) The dividend rate is expected to remain high. The company plans to pay a final dividend of HK$0.28 per share in 2022 (interim dividend of HK$0.15/share). The payout rate for the full year of 2022 may remain around 80%, corresponding to the current stock price dividend rate of 17.6%.
Development trends
Coking coal prices are expected to remain relatively high, supporting the company's profitability and dividend capacity. Although coking coal imports are gradually improving, considering that domestic supply elasticity is still limited, and that the driving effect of physical infrastructure work on demand is expected to be shown this year, and that real estate is expected to gradually bottom out and recover slowly, we expect coking coal prices to remain relatively high. In this context, the company is expected to maintain its performance resilience. At the same time, considering that the company's capital expenditure is relatively stable in the short to medium term, we are optimistic that the company will continue to maintain its dividend appeal.
Profit forecasting and valuation
Taking into account the year-on-year decline in coking coal prices, we lowered our 2023e profit forecast by 6% to HK$2,297 million, and introduced the 2024e profit forecast of HK$2,002 billion. The current stock price corresponds to 2023/24e 5.4x/5.6xp/E. Maintaining an outperforming industry rating, considering that the company's profits may fall and the risk of overseas recession is heating up, we lowered our target price by 10% to HK$3.15, corresponding to 2023/24e 6.9x/7.2x P/E, implying an upward margin of 29%.
risks
The recovery in demand fell short of expectations; supply increased more than expected.