Higher coal price assumptions after the fire incident at Grosvenor coal mine

8Jul2024 CMBInternationalGlobalMarkets|EquityResearch|CompanyUpdate YancoalAustralia(3668HK) HighercoalpriceassumptionsafterthefireincidentatGrosvenorcoalmine WebelievethesuspensionofGrosvenormetallurgicalcoalmine(ownedbyAngloAmerican[AALLN,NR])inQueensland,Australia,followingtheundergroundfireinlateJun,wouldlastforseveralmonths.Weestimatethesuspensionwillresultin~0.8%reductionofglobalmetallurgicalcoalexportvolume,whichwilllikelytranslateintohighermetcoalpriceandserveasapositivecatalystforYancoal(YAL).WeexpecthigherspotpriceswillboostYAL’sASPinboth2H24Eand1H25Ewhensomecontractsaretoberepricedoverthecomingmonths.Wereviseupour2024E/25Eearningsforecastby7%/9%afterrevisingupourASPforecast.OurNPV-basedTPisreviseduptoHK$45fromHK$40.Tradingat6.5x2024EP/Eand7.7%yield,webelievethestockisattractiveforinvestorswhoseekmarginofsafetyandhighdividend.MaintainBUY. Incident.AfirebrokeoutundergroundatGrosvenormetcoalmineasaresultofmethanegasignitionon29Jun.Givenaseriousdamagemade,it’slikelytotakeseveralmonthsbeforethemineoperationcanberesumed.Grosvenorminehasanannualcapacityof5mt.Themineproduced2.8mtofmetcoalin2023,whichwasequivalentto0.8%oftheglobalmetcoalexportin2023(349mt). pricedropped~28%/~9%YoYtoUS$152/US$140pertonnein1Q/2Q24. 1-mth Absolute18.0% Relative22.1% Weexpectthepricingtostabilizefollowingtheincident.Wereviseupour 3-mth 42.8% 34.2% 2024E/25Emetcoalpriceassumptionsby11%/8%forYancoal(pricingimpactgenerallylagsbehindbyacoupleofmonths).Keyrisks:(1)furtherdeclineincoalprice;(2)reboundofunitcost;(3)unfavourableweatherthataffectsproduction 6-mth36.7%27.0%Source:FactSet12-mthPricePerformance Coalpricestabilising.Thebenchmarksemi-softcokingcoalprice(SSCC) TargetPrice HK$45.00 (PreviousTP HK$40) Up/Downside 17.3% CurrentPrice HK$38.35 ChinaEnergyWayneFUNG,CFA(852)39000826waynefung@cmbi.com.hkStockDataMktCap(HK$mn) 50,638.9 Avg3mthst/o(HK$mn) 69.9 52wHigh/Low(HK$) 38.35/23.50 TotalIssuedShares(mn)1320.4 Source:FactSet ShareholdingStructure YankuangEnergy 62.3% ChinaCindaAM 7.7% Source:HKExSharePerformance  Source:Companydata,Bloomberg,CMBIGMestimates Source:FactSet EarningsSummary(YE31Dec) FY22A FY23A FY24E FY25E FY26E Revenue(AUDmn) 10,548 7,778 7,133 6,890 6,876 YoYgrowth(%) 95.2 (26.3) (8.3) (3.4) (0.2) Netprofit(AUDmn) 3,587.0 1,818.7 1,477.1 1,323.6 1,331.4 EPS(Reported)(AUD) 2.72 1.38 1.12 1.00 1.01 YoYgrowth(%) 355.0 (49.3) (18.8) (10.4) 0.6 ConsensusEPS(AUD) na na 1.14 1.14 1.16 1. P/E(x) 2.7 5.3 6.5 7.3 7.2 P/B(x) 1.2 1.1 1.1 1.0 0.9 Yield(%) 16.8 9.5 7.7 6.9 6.9 2. ROE(%) 50.6 22.1 16.8 14.0 13.2 Netgearing(%) (25.2) (14.8) (25.5) (31.7) (39.9) Auditor:ShineWingAustraliaRelatedReports YancoalAustralia(3668HK)– Declinein2023netprofitlargelyexpected;Valuationtobesupportedbyattractiveyield–26Feb2024YancoalAustralia(3668HK)–1H23Epreview:Expectprofitdeclineonweakcoalprice–14Jul2023 PLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGE1 Figure1:Changesinkeyoperatingassumptionsandearningsforecast 2024E Old 2025E 2026E 2024E New 2025E 2026E 2024E Change2025E 2026E Marketablecoalproduction(mntonnes)(100%equitybasis)ConsolidatedminesHVO 13.0 14.0 15.0 13.0 14.0 15.0 0.0% 0.0% 0.0% MountThorleyWarkworth(MTW) 13.0 13.5 13.8 13.0 13.5 13.8 0.0% 0.0% 0.0% Moolarben 18.5 19.0 19.5 18.5 19.0 19.5 0.0% 0.0% 0.0% StratfordDuralie 0.0 0.0 0.0 0.0 0.0 0.0 n/a n/a n/a Yarrabee 2.0 2.0 2.0 2.0 2.0 2.0 0.0% 0.0% 0.0% Middlemount 2.7 3.0 3.3 2.7 3.0 3.3 0.0% 0.0% 0.0% Ashton 0.3 0.3 0.3 0.3 0.3 0.3 0.0% 0.0% 0.0% Total 49.5 51.8 53.9 49.5 51.8 53.9 0.0% 0.0% 0.0% Salesvolume(mntonnes)Thermal 32.1 33.3 33.9 32.1 33.3 33.9 0.0% 0.0% 0.0% Metallurgical 5.2 5.4 6.0 5.2 5.4 6.0 0.0% 0.0% 0.0% Total 37.3 38.7 39.9 37.3 38.7 39.9 0.0% 0.0% 0.0% ASP(A$/t)Thermal 170 155 150 170 157 152 0.0% 1.3% 1.3% Metallurgical 270 260 260 300 280 260 11.1% 7.7% 0.0% Blended 184 170 167 188 174 168 2.3% 2.7% 1.0% Cashoperatingcostbreakdown(A$/tonne)Unitcashoperatingcost -106 -103 -101 -107 -104 -101 0.3% 0.4% 0.2% Unitcashoperatingcost(excludinggovernmentroyalities) -90 -88 -86 -90 -88 -86 0.0% 0.0% 0.0% Unitcashmargin(excludinggovernmentroyalities) 94 82 80 99 86 82 4.5% 5.5% 2.1% Netprofit(A$mn) 1,381 1,215 1,287 1,477 1,324 1,331 6.9% 8.9% 3.4% Source:Companydata,CMBIGMestimates Figure2:YAL’squarterlyoperatingstatistics 1Q23 1Q24 Chg(YoY) 2Q22 2Q23 Chg(YoY) 3Q22 3Q23 Chg(YoY) 4Q22 4Q23 Chg(YoY) Marketablecoalproduction(mntonnes)(100%equitybasis)MinesHVO 1.8 2.8 56% 2.9 2.4 -17% 2.4 3.0 25% 1.6 3.3 106% MountThorleyWarkworth(MTW) 2.0 2.2 10% 1.7 2.6 53% 2.1 3.3 57% 2.3 3.4 48% Moolarben 2.6 5.0 92% 4.1 4.8 17% 3.4 4.5 32% 3.1 4.8 55% StratfordDuralie 0.1 0.1 0% 0.1 0.1 0% 0.2 0.2 0% 0.2 0.2 0% Yarrabee 0.4 0.4 0% 0.5 0.5 0% 0.5 0.5 0% 0.6 0.5 -17% Middlemount 0.5 0.5 0% 0.6 0.5 -17% 0.7 0.6 -14% 0.5 0.6 20% Ashton 0.3 0.3 0% 0.2 0 -100% 0.3 0.0 -100% 0.2 0.1 -50% Total 7.7 11.3 47% 10.1 10.9 8% 9.6 12.1 26% 8.5 12.9 52% Marketablecoalproduction(mntonnes)(Attributablebasis)Total 5.9 8.8 49% 7.4 8.5 15% 7.3 9.3 27