PINGDINGSHAN TIANAN COAL MINING(601666)：COST REDUCTION INCREASE IN SALES VOLUME AND INTRODUCTION OF QUALITY RESOURCES TO BOOST GROWTH IN 2025
2024 results miss our and market expectations
Pingdingshan Tianan Coal Mining announced its 2024 results: Revenue totaled Rmb30.3bn and attributable net profit fell 41% YoY to Rmb2.35bn, missing our and market expectations, mainly due to price decline caused by weak coking coal supply and demand.
Clean coal volume and prices both declined, but output ratio improved significantly.
Output and sales volume: According to the corporate filings, raw coal output and commercial coal sales volume in 2024 were 26.5mnt and 26.41mnt, down 14% and 15% YoY, mainly due to the production suspension of 12 mines and strict safety supervision measures. In 4Q24, raw coal output fell 6% QoQ to 6.47mnt and sales volume of commercial coal rose 8% QoQ to 7.12mnt.
Pirces: According to corporate filings, coal ASP grew 3% YoY to Rmb1,016 in 2024. ASP of clean coal fell 5% YoY to Rmb1,753 in 2024, but the output ratio rose 4ppt YoY to 45%.
Costs and gross profit: In 2024, per-tonne cost of coal grew Rmb56 YoY to Rmb724. Specifically, per-tonne cost of clean coal rose Rmb30 YoY to Rmb1,168. Per-tonne gross profit of coal fell Rmb23 YoY to Rmb292 in 2024, with per-tonne gross profit of clean coal dropping Rmb114 YoY to Rmb585.
G&A and R&D expenses grew notably YoY. In 2024, G&A expenses grew 5% YoY to Rmb1bn, mainly due to the production suspension of 12 mines in 1H24. R&D expenses grew 42% YoY to Rmb1bn in 2024, mainly because the firm increased investment in intelligentization and digitalization.
Capex remained high; dividend payout ratio stood at 60%. In 2024, net operating cash flow was Rmb5.7bn and capex totaled Rmb6.1bn, with liability-to-asset ratio reaching 62% in 2024. The firm previously announced a minimum payout ratio of 60% for 2023-2025, and its actual payout ratio was 60.3% in 2024. If the ratio stand at 60% in 2025, we estimate its dividend yield at 3.3%.
Trends to watch
Supply of and demand for coking coal remained weak; prices under pressure and earnings declined. In 1Q25, the firm’s long-term contract price continued to drop. The price of prime coking coal dropped to Rmb1,770 over January-February and continued to fall to Rmb1,540 in March (down more than Rmb600 YoY) due to spot price decline. We expect the long-term contract price of prime coking coal to stand at Rmb1,540 in 2Q25. As there will be no significant reduction in domestic supply and coal imports, together with weak demand, we expect coking coal prices to remain low and have limited upside potential.
The firm guides output growth and cost decline in 2025. According to corporate filings, the firm expects coal output to grow 17% YoY to 30.93mnt. Specifically, it targets 12.3mnt of clean coal output (up 3% YoY) in 2025, implying an output ratio of around 40% (the ratio was higher in 2024). In addition, the firm guides to reduce controllable costs by 10% (controllable costs account for 70% of total costs) as a response to the price decline.
The firm will accelerate the acquisition of high-quality coal resources outside the province. 1) Joint coal project with the SPIC: The firm secured exploration rights for the Tiechanggou coal mine through a Rmb1.75bn auction. Total reserve of the mine is around 1.67bnt. 2) Acquisition of 60% equity in Wusu Sikeshu coal mine: The mine has an approved annual capacity of 1.2mnt. It generated net profit of Rmb1.2mn in 2023 and Rmb33mnt in 1H24.
Financials and valuation
Given weak coking coal supply and demand as well as price decline, we cut our 2025 net profit forecast 63% to Rmb1.2bn and introduce our 2026 net profit forecast of Rmb1.4bn. The stock is trading at 18x 2025e and 16x 2026e P/E. Given valuation rollover, we cut our TP 27% to Rmb9.5, implying 20x 2025e and 17x 2026e P/E and offering 7% upside.
Risks
Weaker-than-expected demand; higher-than-expected domestic coal supply as well as supply of imported Mongolian coal; possible risks in resource auctions.
