Profit declined 41.9% year-on-year in 1Q24 due to coal prices
Yankuang Energy 1Q24 achieved sales revenue of 39.63 billion yuan, a year-on-year decrease of 20.8%, and net profit of 3.76 billion yuan (net of 3.67 billion yuan), a year-on-year decrease of 41.9%, mainly due to a significant drop in the price achieved by coal sales. The company's main business profit in the coal chemical and power sectors remained stable year on year, but the main business profit in the coal sector fell by 4.39 billion yuan year on year, which was the main driving force behind the year-on-year decline in the company's profit. Although the unit cost of the coal sector has declined, the sharp decline in prices has driven the sector's gross profit down 33.2% year over year. Maintaining the “buy” rating of Yankuang Energy's H/A shares, the target price of Hong Kong stocks is 19.0 HKD (6.9x2024E PE, 1.5 standard deviations higher than the average PE value since 2016, to reflect the future trend of company production expansion and the increase in valuation premiums for high-dividend stocks), and the target price for A shares is 29.3 yuan (70% premium over the target price of Hong Kong stocks, consistent with the average A/H premium level since 2018), the increase in coal production is difficult to beat the downward impact of the price decline
Mainly benefiting from Yancoal's Australian production site's low production base affected by drainage during the same period and production completely returning to normal in the first quarter of this year, Yancoal's 1Q24 raw coal production increased 15.4% (or 4.63 million tons) year-on-year to 58.03 million tons. However, the year-on-year decline in domestic and foreign thermal coal and gas coal prices drove the company's average coal sales price to drop by 300 yuan/ton to 727 yuan/ton year on year, although strong overseas coking coal prices partially offset the adverse effects of falling prices of other types of coal. Judging from the performance of coal prices since April and the forecast of coal prices in May-June, we expect that the average coal price in 2Q24 may still decline slightly from month to month. In terms of cost, apart from Ordos, the company's other production bases all saw a decline in coal production costs per unit in 1Q24. The production cost of tons of coal achieved in 1Q24 fell by 182 yuan/ton year on year, but it is still difficult to offset the impact of falling prices. The gross profit of the coal sector fell 33.2% year on year.
Coal prices may recover at 2H24, and the company's medium- to long-term development prospects are still optimistic. Currently, the price of 5,500 kilos of coal in Qinhuangdao remains at around 820 yuan/ton. We expect the rest of 2Q24 to fluctuate slightly at this level. However, looking ahead to the second half of 2024, due to the expansion of the manufacturing industry and new demand for electricity or an increase that exceeds expectations, the second half of the year will usher in the two traditional peak seasons of coal demand, peak summer and peak winter. We expect 2H24 coal prices to recover, which will bring greater profit flexibility to Yankuang Energy, which accounts for a relatively high share of spot sales. At the same time, we are still optimistic about the company's medium- to long-term development plans. The company plans to expand production capacity to 300 million tons in the future, which is a significant increase over the planned output of 140 million tons this year. At the same time, the company also plans to increase the proportion of high-end chemicals in coal chemicals.
Risk warning: The project is progressing more slowly than expected; commodity prices are lower than expected.