2Q24 results beat our and market expectations
Huaibei Mining announced its 1H24 results: Revenue fell 0.17% YoY to Rmb37.2bn and net profit attributable to shareholders fell 18% YoY to Rmb2.94bn. In 2Q24, revenue and attributable net profit fell 9% YoY and 15% QoQ to Rmb19.95bn and Rmb1.346bn, beating our expectations thanks to mild price decline and effective cost control.
Coal business: Output and sales volume: In 1H24, output and sales volume of market-oriented coal (excluding domestic sales, the same below) fell 9% and 18% YoY to 10.32mnt and 8.03mnt, mainly due to the suspension of Xinhu Coal Mine. In 2Q24, output of market-oriented coal fell 10% YoY and 3% QoQ to 5.09mnt, and sales volume slid 15% YoY and 0.5% QoQ to 4.01mnt.
Prices: In 2Q24, the long-term contract prices of coking coal were lowered by around Rmb200/t, and the firm's overall ASP was Rmb1,112/t (down Rmb30/t YoY and down Rmb64/t QoQ), as prices of other coals slightly offset the decline in long-term contract prices and Zouzhuang Mine shifted from thermal coal to coking coal.
Cost: In 2Q24, per-tonne cost was Rmb537 (down Rmb86 YoY and down Rmb56 QoQ), reflecting effective cost control. Gross profit per tonne was Rmb575 in 2Q24, up Rmb56 YoY and down Rmb9 QoQ.
Coal chemical business: Coke: Output and sales volume totaled 1.7mnt and 1.7mnt in 1H24 (822,000t and 841,400t in 2Q24); ASP was Rmb2,127/t in 1H24 and Rmb1,937/t in 2Q24 (-18% YoY and -16% QoQ). Looking ahead, the loss-making coking business has no signs of improving. The firm has suspended production for maintenance and strengthened by-products to offset losses.
Methanol: Output and sales volume totaled 160,000t and 120,000t in 1H24, and 69,900t and 36,400t in 2Q24; the ASP was Rmb2,177/t in 1H24, and rose 8% YoY and 2% QoQ to Rmb2,210/t in 2Q24.
Ethanol: The firm's 600,000t ethanol project started production in 2Q24. It recorded output and sales volume of 75,500t and 63,600t with an average price of Rmb5,398/t, implying decent profit per tonne.
Financials: G&A expenses rose by Rmb253mn QoQ in 2Q24, mainly due to provisions for annual remuneration (one-off provisions). In 1H24, operating cash flow was Rmb5.4bn and capex totaled Rmb3.85bn, mainly due to the construction of Taohutu project, 2x660MW ultra-supercritical power generation units, and ethanol projects. The firm's liability-to-asset ratio was around 49%, -3ppt from end-2023.
Trends to watch
Long-term contract prices to be under pressure in 4Q24; rising coal output and loss reduction in coal chemicals to support earnings in the next two years. We expect long-term coking coal prices to come under pressure in 4Q24, given weak demand in the ferrous metal value chain, high coal imports from Mongolia, and accelerated production resumption in Shanxi and other provinces.
Looking ahead, the Xinhu Mine is about to resume production and the Taohutu Mine has completed construction of the main shaft. The firm aims to complete overall construction of the Taohutu Mine by end-2025. We believe these factors lay a foundation for the firm's output growth in the next two years. In addition, the firm started operation of 600,000t ethanol project in June 2024, which should help the coal chemical sector turn profitable thanks to its lucrative earnings per tonne. Based on a dividend payout ratio of 42% in 2023, the firm's current share prices imply a 2024e dividend yield of 5.6%. As a high-quality supplier of coking coal, we think the firm is offering attractive investment value.
Financials and valuation
Given pressure on long-term contract prices in 4Q24, we cut our 2024 and 2025 EPS forecasts by 17% each to Rmb1.93 and Rmb2.11. The stock is trading at 7.1x 2024e and 6.5x 2025e P/E. We maintain OUTPERFORM rating, and cut our TP 17% to Rmb19, implying 9.8x 2024e and 9.0x 2025e P/E and 38% upside.
Risks
Disappointing demand; stricter-than-expected safety regulatory control; negative surprises in production resumption at Xinhu Mine.