2023 results are in line with our expectations
The company announced 2023 results: revenue of HK$5.891 billion, -28% YoY; net profit to mother -30% YoY to HK$1,889 million, corresponding to earnings per share of HK$0.38. 2H23 had revenue of HK$2,499 million and net profit attributable to mother of HK$657 million, or -41% YoY/-47%. The company's performance is in line with our expectations. The decline in performance is mainly due to falling coal prices and declining sales.
Comment: 1) The price of coking coal fell. The average sales price of fine coking coal in 2023 was -20% to 1,932 yuan/ton (VAT included), while the average price of Liulin #4/#9 coking coal market during the same period was -20%/-20% to 2164/1948 yuan/ton. The average sales price of 2H23 coking coal is -17% YoY/ -5% month-on-month. 2) Stable production and declining sales.
In 2023, raw coal production was 5.25 million tons, the same as the previous year. Refined coal production was +0.6% to 3.25 million tons, 100% of raw coal was washed, and the refined coal washing rate was +0.4ppt to 61.9% year over year; sales volume was -7% to 3.1 million tons; looking at the sales structure, #4/#9 coal sales accounted for 28%/72%, respectively. 3) Reduction in unit production costs. The production cost of a ton of raw coal in 2023 was -3 yuan to 401 yuan. After deducting depreciation, amortization, and uncontrollable costs (resource tax, etc.), the production cost for a ton of raw coal was -11 yuan to 216 yuan year-on-year, mainly due to a year-on-year reduction in material costs and maintenance costs. 4) Sales expenses in 2023 were -38% year-on-year to HK$215 million, mainly due to a decrease in refined coal sales and a decrease in related logistics costs due to a decrease in railway sales. 5) By the end of 2023, the company had access to free capital of approximately HK$8.032 billion. 6) The dividend ratio was reduced in 2023, and the dividend rate remained high. The company plans to pay a final dividend of HK$0.18 per share for 2023 (interim dividend of HK$0.10/share). Based on the total dividend amount, we estimate that the annual dividend ratio may be 73%, down 7ppt from the previous year. The dividend rate for the closing price of the annual dividend corresponding to the results announcement date was 10.1%.
Development trends
The company's sales price is resilient, and production is disrupted in the short term. Demand for coking coal is under pressure in the short term due to continued downstream losses and weakening operating rates, but we are still optimistic about the fundamentals of high-quality main coking coal. The main ones are: 1) With the large-scale development of blast furnaces, the scarcity of high-quality primary coking coal, which acts as a framework and has better strength, is expected to be further highlighted; 2) Supply is limited. First, as a core producer of high-quality main coking coal, production in Shanxi may be limited to a certain extent in the context of stricter safety supervision. Second, there is relatively limited room for growth in China's imports of high-quality primary coking coal from Australia. Therefore, we believe that although the price of high-quality coking coal is being dragged down by weak demand in the short term, the decline is limited, and the company's coal sales price is resilient. However, during the 1H24 period, Xingwu Coal Mine changed production from the upper group of coal to the lower group of coal. We expect that the company's production may be affected to a certain extent, so we need to continue to pay attention to the company's production situation.
Profit forecasting and valuation
We kept our 2024e profit forecast largely unchanged and introduced a 2025e profit forecast of HK$1,998 billion.
The current stock price corresponds to 2024/25e 7.0x/6.6 x P/E. Maintaining an outperforming industry rating, the coal sector's valuation increased, and the company is expected to benefit as an excellent high dividend target. Therefore, we raised our target price by 11% to HK$3.00, corresponding to 2024/25e 7.9x/7.4xP/E, implying 12% upward space.
risks
The recovery in industry demand fell short of expectations; industry supply exceeded expectations; the company's production recovery was slower than expected.