HUAIBEI MINING HOLDINGS(600985)：WEAK COKING COAL PRICES DRAG EARNINGS; LOSS OF COAL CHEMICALS FALLS SLIGHTLY

　　2024 results missing our and market expectations

    　　Huaibei Mining Holdings announced its 2024 results: Revenue fell 10% YoY to Rmb65.7bn, attributable net profit fell 22% YoY to Rmb4.86bn, and weighted average ROE was 12.2%; in 4Q24, revenue came to Rmb9.1bn, and attributable net profit fell 39% YoY and 41% QoQ to Rmb716mn, mainly due to weakening product prices.

    　　Coal business: Output and sales volume: In 2024, output and sales volume of commercial coal (excluding domestic sales, the same below) came to 20.55mn and 15.37mn tonnes, down 6% and 14% YoY, mainly due to tightening safety regulations and the suspension of Xinhu coal mine. In 4Q24, the output of commercial coal totaled 4.88mn tonnes, down 7% YoY and 9% QoQ, with a sales volume of 3.49mn tonnes (down 14% YoY and 9% QoQ). We attribute the weakening sales volume to increased domestic sales of thermal coal.

    　　Prices: The long-term contract price of main coking coal gradually fell in 2024. The full-year average price (including domestic sales) of main coking coal dropped 9% YoY to Rmb1,075/t, with the price of washed coking coal down 9% YoY to Rmb1,701/t. Cost: In 2024, the firm's cost per tonne of coal was Rmb536/t (down Rmb62 or 10% YoY), with that of washed coking coal at Rmb779, down Rmb95 or 11% YoY.

    　　Gross profit per tonne was Rmb512 in 4Q24, down Rmb2 YoY or Rmb63 QoQ. Other aspects: Operating entity Bozhou Coal reported a net loss of Rmb891mn (down Rmb550mn YoY) due to the suspension of the Xinhu mine, larger than we expected.

    　　Coal chemical business: In 2024, the net profit of Linhuan Coking and Carbon Xin Technology came to -Rmb990mn and -Rmb136mn (suggesting a combined growth of Rmb187mn YoY), missing expectations. Coke: Output and sales volume came to 3.55mn and 3.52mn tonnes in 2024, with ASP falling 16% YoY to Rmb1,961/t. Methanol: Output and sales volume came to 0.41mnt and 0.2mnt in 2024 with ASP rising 2% YoY to Rmb2,157/t. Ethanol: A total of 0.6mnt of new production capacity was put into operation in 2024. Annual production and sales volume came to 0.37mnt and 0.36mnt in 2024, with an ASP of Rmb4,999/t.

    　　Financials: In 2024, operating cash flow was Rmb9.1bn, and capex was Rmb8.6bn; liability-to-asset ratio was about 47%.

    　　Trends to watch

    　　Weak coking coal prices may continue to weigh on earnings. The firm continued to lower long-term contract prices in 1Q25. In March, falling spot prices triggered a circuit breaker mechanism, and the long-term contract price of main coking coal fell to Rmb1,540/t, down over Rmb600/t from the cyclical average. We expect the long-term contract price to stay at Rmb1,540/t in 2Q25. Given weak demand and no significant reduction in supply in the near term, we expect the short-term price to be flat with limited upside potential, weighing on earnings in 2025.

    　　In the medium and long term, we see a large upside in sales volume and an upside in the dividend payout ratio. The firm announced that the Xinhu mine will resume production in 2025, and the Taohutu project will be put into operation by the end of 2025. We see an upside in the firm's sales volume in the next few years. In addition, losses from the coal chemical business will likely continue to decline, laying a foundation for earnings recovery in 2026. The firm also announced that it will raise the lower limit of its dividend payout by 5ppt to 35%. We believe that the firm will have the financial foundation to raise dividends as it has no other large projects to invest in except the Taohutu project.

    　　Financials and valuation

    　　Given weakening coking coal prices, we lower our 2025 earnings forecast 41% to Rmb3.35bn and introduce a 2026 earnings forecast of Rmb3.5bn. The stock is trading at 11x 2025e and 10x 2026e P/E. We maintain OUTPERFORM as the firm is a leading high-quality coking coal producer with visible growth potential in the medium and long term. Considering valuation rollover to 2025, we cut our target price 21% to Rmb15, implying 12x 2025e and 11.5x 2026e P/E and offering 13% upside.

    　　Risks

    　　Disappointing demand, resumption of production at Xinhu mine and/or earnings recovery of coal chemicals.