Coal Index Leading the Rise, What Is Logic of Leading Stock Yankuang Energy (01171.HK) Future Growth Potential?
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Trigger event: In 2022H1, $YANKUANG ENERGY(01171.HK$ achieved revenue of 100.29 billion yuan, YoY+53.4%; Net income attributable to its parent reached RMB18.04bn, YoY+198.5%; Net profit deducted from non-attributable income reached 17.84 billion yuan, YoY+193.8%. Basic EPS 3.70 yuan. With high overseas energy prices in 2022H1, Yancoal Australia (YAL) achieved non-attributable net profit of RMB8.3bn, YoY+1691%, contributing about RMB5.17bn to the company's earnings.
Key Takeways:
1.YAL performance largely increased under high overseas coal prices, and the parent company Yankuang fell into the historical undervaluation range. Maintain 'Buy' rating.
YAL is the core coal asset held by Yankuang Energy in Australia (holding 62.26%), with rich resources, large production capacity and a flexible pricing mechanism. Considering the surging overseas coal demand after the Russia-Ukraine conflict, YAL has strong profitability and is expected to contribute significantly to Yankuang Energy's performance elasticity. Kaiyuan Securities maintains its profit forecast. It is expected that the EPS in 2022-2024 will be 7.10/7.45/7.76 yuan; Corresponding to the current price, PE is 6.9/6.6/6.4, which is at the low valuation level of the market. Maintain 'Buy' rating.
2. YAL coal price increased substantially in 2022H1 through the elastic pricing mechanism, and the high-price coal will remain in the short term.
YAL thermal coal pricing mechanism mainly refers to the API5 price index and Newcastle index. Low calorific value thermal coal is priced in API5, while the remaining small proportion of high calorific value coal is priced in Newcastle; Metallurgical coal according to the base price or spot price pricing, also has a certain flexibility. Since March 2022, YAL coal's price has risen sharply as overseas coal demand increased after the Russia-Ukraine conflict. The overall average selling price of 2022H1 coal is AUD 314 / ton (+234%), of which thermal coal is AUD 298 / ton (+235%) and met coal is AUD 402 / ton (+230%).
3. YAL production reduced and cost rose, and the model of offsetting quantity by price still greatly boosted its performance.
YAL 2022H1 raw coal /salable coal production was 25.80/20.8 million tons, -11.9%/-10.3% YoY, mainly affected by rainfall in H1. The decline in production slightly increased the cost of coal per ton. with the 2022H1 YAL operating cost per ton(excluding royalties) is AUD 83 per ton, +23.9% YoY. The increase in coal price was significantly higher than the increase in cost. 2022H1 YAL realized a significant increase in profit, with revenue of AUD 4.78 bn, +169.1% YoY; Net profit attributable to its parent was AUD 1.738 bn, +AUD 1.87bn.
4. YAL profitability significantly improved, and Yankuang energy enlarge stake in YAL is expected to further increase performance.
Kaiyuan securities forecast Yancoal Australia 2020-2024 net profit attributable to the parent of AUD 41.5/58.3/6.18bn, +326%/41%/6% YoY, equivalent to RMB190.7/268.4/28.42bn. Considering the holding ratio of Yankuang Energy is 62.26%, it is estimated that Yancoal Australia contributed RMB118.8/167.1/17.7bn in net profits to Yancoal Energy from 2022 to 2024. Controlling shareholder Yankuang Energy plans to issue convertible bonds to increase Yancoal Australia, which is expected to further improve Yankuang's performance.
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