Introduction to this report:
The volume and price of coking coal have risen sharply, with performance rising sharply year-on-year throughout the year. Affected by the low demand for 22H2, the growth rate was slightly lower than expected. The direction of recovery has been determined, and the coking coal market is expected to improve, companies will benefit, and high dividends show value.
Summary:
Maintain target prices and “increase holdings” ratings, and lower profit forecasts. The company achieved revenue of HK$8.34 billion (+16%) in 2022 and net profit of HK$2.72 billion (+7%) for its mother. Benefiting from the rise in coking coal prices in 2022, performance increased year-on-year. Affected by low demand in the 22H2 black industry chain, the growth rate was slightly lower than expected.
Although the coking coal boom has improved since 22H2, 2023 is still slightly below the 22H1 boom, and the net profit returned to the mother in 2023 and 2024 was lowered to HK$28.4, 29.0 (previously 34.3, 336) million HK$28.4 billion. It is expected to be HK$2.94 billion in 2025. As the company maintains a high dividend rate of 80%, it maintains a target price of HK$402 and an increase in holdings rating of HK$402.
The volume and price of coking coal have risen sharply, and performance has been mixed, and there has been a sharp year-on-year increase throughout the year. In 2022, the company produced 5.25 million tons of raw coking coal (+2%), and after the increase in raw coal production, coking refined coal production was 3.23 million tons (+1%). Sales also increased 3.32 million tons year-on-year and the growth rate was the same as production. In the same period, the company enjoyed the boom in coking coal with its flexible price adjustment method. The tax-inclusive price of coking coal was 2,402 yuan/ton, an increase of 383 yuan/ton over the same period last year. Although affected by resource tax, etc. (ad valorem tax, +18 yuan/ton year over year) and wages (+6 yuan/ton year over year), the original cost of coking coal increased from 379 yuan in 2021 to 404 yuan/ton, but the increase was far less than the selling price. In 2022, the coking coal business achieved HK$8.21 billion (+16%), achieving gross profit of HK$5.29 billion (+20%), of which 22H2 gross profit of HK$2.28 billion was less than H1 by $730 million, mainly due to both volume and price reductions: 1) Due to weak downstream demand, the average sales price of 22H1 coking coal was $2,263, a decrease of 258 yuan from H1; 2) Production plans or affected by the epidemic, 22H1 raw coal production was 2.55 million tons, a slight decrease of 150,000 tons.
The direction of recovery has been determined, and the sentiment of the coking coal market is expected to improve. 1) Supply: Domestic coking coal production from January to February was 78.28 million tons (+1%). The supply of coking coal may have reached a bottleneck. Along with stricter safety checks in Shanxi Province, the main producer, it may be difficult to maintain a high level of coking coal supply; 2) Imports: The import volume of coking coal from January to February was 13.11 million tons, an increase of 4.61 million tons over the same period, mainly due to a low and high import volume in 2022; 3) Demand: 2023 target GDP growth of about +5%, pig iron production increased 7.3% from January to February and recovered The direction is clear. The coking coal boom is expected to improve, and the company will benefit.
High dividends highlight the value of the investment. The company had a dividend rate of 80% and a dividend rate of 17% for the full year of 2022.
Risk warning. Coking coal prices fell more than expected; coal production fell short of expectations.