Incident: The company released an operating report for the second quarter. The average coal price for the second quarter was 181 Australian dollars/ton, which was basically the same as the previous quarter. Among them, the average sales price of thermal coal was 163 Australian dollars/ton, up 3% from the previous month; the average sales price of metallurgical coal was 318 Australian dollars/ton, down 5% from the previous month. Achieved 8.6 million tons of coal sales, an increase of 3% over the previous month. The company achieved a coal sales price of 180 Australian dollars/ton in the first half of the year, a year-on-year decrease of 35%; achieved coal sales of 16.9 million tons, an increase of 18% over the previous year. Overall, the company's operating performance in the first half of the year was relatively steady, and production and operation were carried out as expected. Based on the good profit margin level, steady financial situation and attractive dividend policy of the company's low-cost coal mine, the 25-year P/E ratio was 7x, and the target price was 43.2 yuan, maintaining the purchase rating.
Report summary
In the second quarter, commercial coal equity production declined slightly from month to month, sales increased slightly from month to month, and inventory levels returned to normal.
The company's commercial coal equity production in the second quarter of 2024 was 8.2 million tons, a slight decrease of 4% year-on-year and a slight decrease of 7% month-on-month. The main reason was that the weather affected production and operation due to heavy rainfall and adjustments in mining plans. Production at the Hunt Valley and Moraben mines is expected to continue to recover in the second half of the year. The company's inventory was high in the first quarter due to train and railway derailment, and inventory levels returned to normal in the second quarter. The annual production guidelines remain unchanged at 3,500 to 3900 million tons.
The average sales price remains stable and is expected to remain balanced throughout the year. The company's average coal price in the second quarter was 181 Australian dollars/ton, which was stable from month to month. Since the third quarter of last year, coal prices have been relatively stable, and it is expected that the impact of the high base will weaken in the future. There is a balance between supply and demand in the thermal coal market. Demand continues to improve, but end user inventory levels are still high. In the long run, the thermal coal market is relatively balanced. The price of metallurgical coal is also quite balanced.
Cost guidelines remain unchanged, and profit levels remain high. The company maintains a cash operating cost guideline of AUD89-97 per tonne.
The realized price of coal in the second quarter was equivalent to twice the guideline's lower cash cost limit, indicating that the company still maintained a good profit margin. The company is also a competitive cost producer in the Australian industry, with no interest-based loans and a huge cash position (cash balance of 1.55 billion Australian dollars as of June 30, 2024), which will help the company maintain a strong ability to generate cash and compete in the current coal market conditions.
The dividend policy attracts. The company's dividend policy is to pay no less than 50% of net profit after tax (excluding non-recurring items) or 50% of free cash flow (excluding non-recurring items) for each fiscal year under normal circumstances.
Maintaining a “buy” rating, the target price is HK$43.2. We believe that the company's production will recover further this year, overall coal prices will remain in a relatively balanced state, and profit margins will remain at a relatively good level. For the company's 2024/2025 EPS forecasts, they are AUD 1.05/1.19, respectively. Combining industry valuations and the company's outlook, we gave the 2025 P/E ratio 7x, corresponding to a share price of HK$43.2. (Exchange rate assumption: 1 Australian dollar = 5.2 HKD) Risk warning: demand falls short of expectations; coal prices fall rapidly; production and sales fall short of expectations