3Q24 results beat our expectations

China Coal Energy announced its 1-3Q24 results: Attributable net profit fell 12.4% YoY to Rmb14.6bn, implying EPS of Rmb1.10. Recurring attributable net profit fell 12.9% YoY to Rmb14.4bn.

In 3Q24, attributable net profit fell 0.6% YoY but rose 0.2% QoQ to Rmb4.83bn. Recurring attributable net profit fell 1.0% YoY but rose 0.1% QoQ to Rmb4.77bn. The 3Q24 earnings remained stable and beat our expectations, mainly due to better-than-expected cost reduction.

Coal production and sales volume were stable. In 1-3Q24, commercial

coal output rose 1.1% YoY to 102.31mnt, with thermal coal and coking coal output up 1.3% and down 0.2% YoY to 93.75mn and 8.56mnt. Sales volume of self-produced coal rose 0.7% YoY to 100.38mnt.

In 3Q24, output of commercial coal and sales volume of self-produced coal were 35.81mnt and 34.19mnt, up 5.2% and down 1.8% YoY and up 6.0% and 0.9% QoQ.

Coal prices fell slightly. In 1-3Q24, ASP of self-produced coal fell 5.3% YoY to Rmb571/t, with that of thermal coal and coking coal down 5.5% and 4.3% YoY.

In 3Q24, ASP of self-produced coal fell 3.2% YoY and 4.3% QoQ to Rmb546/t, with ASP of thermal coal and coking coal down 3.0% and 7.1% YoY, and 4.0% and 5.0% QoQ.

Cost of self-produced coal fell. Cost per tonne of self-produced coal fell 2.8% YoY to Rmb287 in 1-3Q24 (down 1.5% YoY to Rmb229/t excluding freight costs).

In 3Q24, cost of self-produced coal fell 12.2% YoY and 6.9% QoQ to Rmb274/t (down 13.9% YoY and 11.5% QoQ to Rmb214/t excluding freight costs).

Gross profit of the coal chemical business fell 68% YoY and 54% QoQ to Rmb372mn in 3Q24, mainly due to pressure on sales volume

and prices. Due to production suspension and maintenance, output of major chemicals fell 23.3% YoY and 22.8% QoQ in 3Q24, and sales volume fell 27.1% YoY and 19.5% QoQ, weighing on cost per tonne. In addition, prices of most chemical products fell QoQ in 3Q24 amid falling international oil prices, with prices of polyethylene, polypropylene, urea, methanol, and ammonium nitrate changing -1.6%, +0.1%, -4.3%, -5.6%, and -7.9% QoQ.

Trends to watch Coal prices to be supported in 4Q24. In 3Q24, the spot price of

Qinhuangdao 5,500kcal was flat YoY and down 1.9% QoQ, and the long- term contract price at ports was largely flat YoY and QoQ. The price of 1/3 coking coal at ports fell 11% YoY and 10% QoQ. The decline in prices of self-produced coal was relatively limited. Since October, the spot price of thermal coal at ports has rebounded by about Rmb10/t compared with 3Q24, and price of 1/3 coking coal has rebounded by around Rmb20/t.

Looking ahead, we believe the peak season for thermal coal and marginally improving non-power demand will support coal prices.

Financials and valuation

We maintain our 2024 and 2025 earnings forecasts for China Coal A- shares and H-shares. China Coal A-shares are trading at 9.8x 2024e and 9.6x 2025e P/E, and H-shares at 6.0x 2024e and 5.8x 2025e P/E.

Maintain OUTPERFORM rating for A-shares and H-shares. We maintain our TP for A-shares at Rmb15.00, implying 11.2x 2024e and 10.9x 2025e P/E, offering 13% upside. We maintain our TP for H-shares at HK$11.00, implying 7.0x 2024e and 6.8x 2025e P/E, offering 16% upside.

Risks

Disappointing demand recovery; sharper-than-expected impairment.