CHINA COAL ENERGY(01898.HK)：1Q24 RESULTS MISS; UPBEAT ON HIGHQUALITY GROWTH AHEAD-格隆汇

机构：中金公司
研究员：Yan CHEN

1Q24 results slightly missed our expectations
China Coal Energy announced its 1Q24 results: Revenue fell 23.3% YoY to Rmb45.4bn; A-share attributable net profit dropped by 30.5% YoY to Rmb4.97bn or Rmb0.37/sh; and recurring attributable net profit declined by 31.4% YoY to Rmb4.89bn. H-share attributable net profit fell 27.2% YoY to Rmb5.5bn. The firm's 1Q24 earnings slightly missed our expectations, due to higher-than-expected costs and lower investment income.
Comments:
Revenue of the coal business dropped by 26.1% YoY to Rmb37.5bn (down Rmb13.26bn YoY). Gross profit fell 23.5% YoY to Rmb10.13bn (down Rmb3.11bn YoY). Specifically, revenue from self-produced coal fell 11.6% YoY to Rmb19.31bn (down Rmb2.54bn YoY); and gross profit dropped by 23.6% YoY to Rmb9.91bn (down Rmb3.06bn YoY).
Production and sales volume of coal declined. In 1Q24, the firm's commercial coal output dropped by 1.7% YoY and 1.0% QoQ to 32.73mnt. Specifically, production volume of thermal coal and coking coal was 29.92mnt (-1.9% YoY, -2.6% QoQ) and 2.81mnt (+0.7% YoY, +20.1% QoQ). Sales volume of its self-produced coal was 32.31mnt (-0.8% YoY, -5.6% QoQ).
Prices of self-produced coal declined YoY. In 1Q24, the average price of the firm's self-produced coal was Rmb598/t (-10.9% YoY, -0.2% QoQ). Specifically, the average price of thermal coal dropped by 10.8% YoY and 3.4% QoQ; the average price of coking coal declined by 10.7% YoY but rose 3.5% QoQ.
Per-tonne cost of coal rose YoY. In 1Q24, the cost of sales per tonne of self-produced coal rose 6.8% YoY to Rmb291 (-15.1% QoQ) in A-share terms. Excluding transportation and port surcharges, the cost of sales per tonne of self-produced coal rose 8.8% YoY to Rmb233 (-17.3% QoQ) in A-share terms. Specifically, per-tonne coal material and labor costs increased by 7.8% and 36.1% YoY to Rmb55.03 and Rmb49.26, due to YoY increase in coal mine stripping volume and driving footage as well as worker salaries.
Revenue from major coal chemicals dropped by 14.6% YoY to Rmb4.74bn in 1Q24, due to lower production and sales volume. Gross profit fell 6.7% YoY to Rmb796mn.
Investment income fell 54.8% YoY to Rmb444mn in 1Q24, due to Huajin Coking Coal, in which the firm holds a stake. Corporate filings show that Huajin Coking Coal's Shaqu No.1 mine halted production over December 13, 2023-April 8, 2024, due to a safety accident.
Trends to watch
China Coal Energy published an action plan to improve quality, efficiency and return in 2024, calling for reducing costs along the entire industry chain and value chain, improving quality and efficiency, increasing industrial synergies, and stepping up efforts to develop new quality productive forces. It also said that high-quality assets would be injected to the listed company. Looking ahead, we think the firm will maintain high-quality growth. We are upbeat on the growth potential of the company.
Financials and valuation
We cut our A-share earnings forecasts by 12% to Rmb17.99bn for 2024 and 12% to Rmb18.36bn for 2025; and cut our H-share earnings forecasts by 12% to Rmb18.77bn for 2024 and 12% to Rmb19.01bn for 2025, to reflect higher cost assumptions and resource taxes. A-shares are trading at 8.3x 2024e and 8.1x 2025e P/E. H-shares are trading at 4.8x 2024e and 4.5x 2025e P/E. Given higher valuations, we maintain our OUTPERFORM ratings and target prices for A-shares and H-shares. Our TP for A-shares implies 9.6x 2024e and 9.4x 2025e P/E, offering 16% upside. Our TP for H-shares implies 5.7x 2024e and 5.3x 2025e P/E, offering 18% upside.
Risks
Demand recovery disappoints; supply growth beats expectations.