occurrences

CNOOC announced that the Yangpoquan coal mine auction was sold at a price of about RMB 4 billion on July 26. The company holds 49% of the shares in Yangpaquan Coal Mine. We expect the deal to close before the end of the year.

reviews

Introduction to the Yangpaquan Coal Mine. The company purchased 49% of the mine's shares in 2009 at a price of 678 million yuan. Considering the impact of asset impairment and surplus accumulation, the book value of 49% of the mine's shares was less than $200 million by the end of 2017.

Investment returns from the divestment of coal mines are expected to double earnings in 2018. The coal mine auction sold for about 4 billion yuan. After deducting about 400 million yuan of related debt and auction-related expenses, the company is expected to record pre-tax cash income of 1.75 billion yuan, and net revenue will reach at least 1.2 billion yuan. We currently expect the company to make a profit of around 1.2 billion yuan in 2018. If the deal can be completed in 2018, the company's profit in 2018 is expected to reach 2.4 billion yuan.

Divestment of coal mines will not affect future profits. The mine has been out of production since March 2010, and the divestment is not expected to affect the company's 2019 and long-term profits. Therefore, looking at comprehensive considerations, it is expected that the divestment of coal mines will not affect the core fundamentals of the company, but rather the further optimization of the company's business structure and assets, constituting long-term benefits.

risks

The deal progressed more slowly than expected.