YANKUANG ENERGY GROUP(600188)：CAPACITY RAMP-UP CONTINUES; COST CONTROL AND QUALITY IMPROVEMENT UNDERWAY

2024 results largely in line with our expectations

    Yankuang Energy Group announced its 2024 results: A-share net profit attributable to shareholders fell 28% YoY to Rmb14.4bn, and recurring attributable net profit fell 25% YoY to Rmb13.9bn. H-share attributable net profit dropped 27% YoY to Rmb14.1bn, largely in line with our expectations. We attribute the firm's earnings decline to falling coal prices. In 4Q24, A-share attributable net profit fell 33% YoY and 21% QoQ to Rmb3.02bn, and recurring attributable net profit fell 35% YoY and 24% QoQ to Rmb2.84bn. We attribute the sharp QoQ decline to centralized provisioning for expenses and impairments, as well as a QoQ increase in effective tax rate.

    Coal output and sales volume increased. Output and sales volume of self-produced commercial coal rose 7.9% and 7.3% YoY to 142.5mnt and 129.8mnt in 2024. We attribute the increase in self- produced coal output to production recovery and ramp-up at subsidiaries such as Yancoal Australia, Inner Mongolia Mining, and Inner Mongolia Haosheng Coal Mining Company.

    Coal prices fell. In 2024, ASP of self-produced commercial coal fell 16% YoY to Rmb656/t, with domestic and overseas ASPs falling 13% and 23% YoY to Rmb586/t and Rmb798/t. The ASP of self-produced coal fell 16% YoY and 3% QoQ to Rmb637/t in 4Q24.

    Cost per tonne of coal improved. Cost per tonne of self-produced coal declined 5% YoY to Rmb345/t in 2024 for H-shares.

    Coal chemicals business remained solid. In 2024, the firm's output of chemicals rose 1.4% YoY to 8.70mnt, and GM of the coal chemicals business rose 1.6ppt YoY to 21.6% thanks to cost improvement.

    As of end-2024, the firm's interest-bearing liabilities stood at Rmb118.5bn (we estimate net debt at Rmb80.1bn, implying a net gearing ratio of 97.0%) and its debt-to-asset ratio was 62.9%.

    The firm proposed a final dividend of Rmb0.54/sh for 2024 (an interim dividend of Rmb0.23/sh has been distributed), implying a full- year dividend payout ratio of 55% in 2024, with A- and H-share dividend yields of 5.7% and 9.7%.

    Trends to watch

    In 2025, the firm plans to produce 155-160mnt of commercial coal and 8.6-9.0mnt of chemicals. It aims to lower cost per tonne of coal by 3% YoY and reduce its debt-to-asset ratio to below 60%. The firm expects its capex to be Rmb19.55bn. We believe the firm’s long-term capacity expansion remains promising. Its Wanfu coal mine began trial operation at end-2024, while WuCaiWan No. 4 open-pit mine is set to commence production in 2025. Geological reports have been approved for the Liusangedan and Galutu mines, and preliminary design for Huolinhe No. 1 coal mine has been completed. We expect these projects to boost the firm's production capacity by nearly 50mnt.

    Financials and valuation

    We introduce our 2025 and 2026 earnings forecasts of Rmb9.3bn and Rmb11.0bn for A-shares, and Rmb9.2bn and Rmb11.0bn for H-shares. A- shares are trading at 14.7x 2025e and 12.4x 2026e P/E, and H-shares at 8.7x 2025e and 7.1x 2026e P/E. While falling coal prices may weigh on the firm's earnings in the near term, we see large growth potential in the long term and are upbeat on its earnings growth. Maintain OUTPERFORM. Given easing supply and demand conditions and falling earnings in the near term, we cut our A- and H-share TPs 30% and 38% to Rmb16.00 (17.2x 2025e and 14.6x 2026e P/E with 18% upside) and HK$10.00 (10.3x 2025e and 8.4x 2026e P/E with 18% upside).

    Risks

    Disappointing progress of projects; sharper-than-expected decline in coal prices.