20221021-招银国际-兖煤澳大利亚-03668.HK-3Q_thermal_coal_ASP_way_above_benchmark__a_positive_surprise_7页_971kb

Yancoal Australia (3668 HK) Company Update Summary

Core Content

Yancoal Australia (3668 HK) has reported a significant increase in thermal coal average selling price (ASP) in 3Q22, surpassing the API5 benchmark by 226% YoY. This growth was attributed to strong sales timing, higher short-term volume, and the rollover of long-term contracts. The blended ASP also saw a surge of 210% YoY to A$481/t, reflecting the company's ability to manage pricing effectively.

Despite this positive ASP performance, the attributable sales volume of thermal coal dropped by 34% YoY to 5.8mn tonnes, and metallurgical coal by 44% YoY to 0.9mn tonnes. The company's full-year saleable production guidance remains at 31-33mn tonnes, and it needs to deliver 8.6-10.6mn tonnes in 4Q22E to meet these targets. The strong coal prices in 4Q22E are expected to more than offset the production volume decline.

Key Financial Highlights

• Turnover (A$ million): FY20A: 3,473, FY21A: 5,403, FY22E: 11,293, FY23E: 10,311, FY24E: 9,501
• Core Net Profit (A$ million): FY20A: -1,040, FY21A: 791, FY22E: 4,538, FY23E: 3,800, FY24E: 3,245
• Core EPS (A$): FY20A: -0.79, FY21A: 0.60, FY22E: 3.44, FY23E: 2.88, FY24E: 2.46
• EV/EBITDA (x): FY20A: 3.0, FY21A: 0.9, FY22E: 1.0, FY23E: 1.2
• PE (x): FY20A: 7.5, FY21A: 1.5, FY22E: 1.8, FY23E: 2.1
• PB (x): FY20A: 1.2, FY21A: 1.0, FY22E: 0.8, FY23E: 0.7, FY24E: 0.6
• Yield (%): FY20A: 0.0, FY21A: 11.0, FY22E: 23.0, FY23E: 19.3, FY24E: 16.5
• ROE (%): FY20A: -18.3, FY21A: 13.9, FY22E: 59.7, FY23E: 39.0, FY24E: 29.1
• Net gearing (%): FY20A: 68.7, FY21A: 31.6, FY22E: Net cash, FY23E: Net cash, FY24E: Net cash

Key Risks

1. Decline in coal price
2. Easing geopolitical tensions
3. Higher-than-expected production costs

Valuation and Investment Outlook

• Reiterated BUY rating
• Target Price (TP): HK$53.0
• Current Price: HK$26.20
• TP Up/Downside: +102%
• Valuation Method: Net Present Value (NPV) based on future cash flows from reserves, discounted at a WACC of 5.9%.
• Long-term coal price assumptions:
  • Thermal coal: A$120/t
  • Metallurgical coal: A$160/t
• Long-term unit cash cost inflation: 2% p.a.
• AUD/HKD exchange rate: HK$5.3

Key Operating Assumptions

• Marketable coal production (mn tonnes): FY22E: 42.6, FY23E: 44.3, FY24E: 46.2
• Attributable sales volume (mn tonnes): FY22E: 32.0, FY23E: 33.5, FY24E: 34.7
• ASP (A$/tonne): FY22E: 481, FY23E: 481, FY24E: 481
• Revenue (A$ million): FY22E: 3,227, FY23E: 3,227, FY24E: 3,227

Financial Summary

• Cash Flow from Operations (A$ million): FY22E: 4,689, FY23E: 5,530, FY24E: 2,609
• Net Capex on PP&E (A$ million): FY22E: -580, FY23E: -550, FY24E: -550
• Cash at End of Year (A$ million): FY22E: 1,505, FY23E: 3,597, FY24E: 4,006
• Equity: FY22E: 9,058, FY23E: 10,430, FY24E: 11,900

Key Ratios

• Sales Mix (%):
  • Sales of coal: 99.9
  • Sea freight: 0.7
  • Interest income: 0.6
  • Mining services fees: 0.0
  • Other: 0.5
• Profit & Loss Ratio (%):
  • EBITDA margin: 65.6
  • EBIT margin: 57.5
  • Net profit margin: 40.2
• Balance Sheet Ratio:
  • Current ratio (x): 3.8
  • Receivable turnover days: 34
  • Inventory turnover days: 50
  • Payable turnover days: 100
  • Net debt / total equity (%): Net cash
• Profitability (%):
  • ROA: 37.6
  • ROE: 59.7
• Per Share Data:
  • EPS (A$): 3.44
  • BVPS (A$): 6.86
  • DPS (A$): 1.72

Investment Highlights

• Yancoal's strong balance sheet and free cash flow provide room for potential dividend increases.
• The stock is trading at 1.5x 2022E P/E or 23% yield (net of dividend tax).
• The company's solid financial position and high ASP growth suggest a positive outlook, despite the challenges in production volume.

Analyst Information

• Analyst: Wayne Fung, CFA
• Contact: (852) 3900 0826, waynefung@cmbi.com.hk

Stock Data

• Market Cap (HK$ million): 34,596
• Average 3 months turnover (HK$ million): 114
• 52-week High/Low (HK$): 47.26 / 15.21
• Total Issued Shares (mn): 1,320

Shareholding Structure

• Yankuang Energy: 62.26%
• China Cinda AM: 13.74%
• Others: 23.99%

Share Performance

• 1-month: -13.8% (Absolute), -3.1% (Relative)
• 3-months: -10.5% (Absolute), 11.9% (Relative)
• 6-months: 1.8% (Absolute), 29.7% (Relative)

TP Sensitivity

• WACC: 3.9%, 4.9%, 5.9%, 6.9%, 7.9%
• Thermal coal price (A$/t): 80, 100, 120, 140, 160
• Metallurgical coal price (A$/t): 120, 140, 160, 180, 200
• TP (HK$): 22.9, 26.6, 29.3, 31.4, 32.9 (for thermal coal price of A$120/t)

Conclusion

Yancoal Australia has demonstrated strong ASP growth in 3Q22, which is a positive surprise and suggests effective management. The company's balance sheet remains solid, with significant cash reserves and a strong yield. The outlook for the stock remains positive, with a reiteration of the BUY rating and a target price of HK$53.0. However, the company faces risks such as potential coal price declines and production challenges.