20230120-招银国际-兖煤澳大利亚-03668.HK-Thermal_ASP_in_4Q_continued_to_beat_benchmark_7页_1mb

Yancoal Australia (3668 HK) Company Update Summary

Core Content

Yancoal Australia (YAL) reported strong average selling prices (ASPs) for thermal and metallurgical coal in 4Q22, despite a decline in attributable coal sales. The company's financial performance and valuation are key factors in the analysis.

Main Points

• Thermal Coal ASP:

  • Achieved A$430/t in 4Q22, a 121% increase YoY and 12% decrease QoQ.
  • Surpassed the API5 benchmark (A$214/t) by a significant margin.
  • Blended ASP surged to A$422/t, up 102% YoY.

• Metallurgical Coal ASP:

  • Increased by 37% YoY to A$389/t.
  • Blended ASP for metallurgical coal also rose significantly.

• Sales Volume:

  • Attributable sales volume of thermal coal dropped by 33.6% YoY to 5.5mn tonnes.
  • Metallurgical coal sales volume decreased by 10.6% YoY to 1.4mn tonnes.
  • The total attributable sales volume for FY22E was 6.9mn tonnes, down 29.9% YoY.

• Revenue:

  • Revenue for thermal coal in 4Q22 was A$2,369mn, up 41% YoY.
  • Strong ASPs helped offset the decline in sales volume, contributing to revenue growth.

• Costs:

  • Unit cash cost (excluding royalties) was close to the high end of guidance at A$85/t.
  • Expected stabilization of unit cost in 2023E due to potential sales volume recovery.

• Debt Reduction:

  • Substantial debt reduction since Oct 2021, with A$2.7bn gross cash balance as of end-2022.
  • Repaid US$2.76bn (~A$4bn) in debts.

• Valuation:

  • Maintain BUY rating with a target price of HK$53.0, which is 54% above the current price of HK$34.35.
  • Valuation is based on NPV, using long-term coal price assumptions and WACC.

• Key Assumptions:

  • Long-term thermal coal price: A$120/t starting from 2025E.
  • Long-term metallurgical coal price: A$160/t.
  • Unit cash cost inflation: 2% p.a.
  • WACC: 5.9%, based on a risk-free rate of 3.7%, risk premium of 7%, beta of 0.3, and debt/capital ratio of 10%.
  • AUD/HKD exchange rate: HK$5.3.

• Financial Performance:

  • Core Net Profit increased significantly in FY22E to A$4,538mn, up 475.7% YoY.
  • Core EPS was A$3.44 in FY22E, with a YoY decline of 16.3% in FY23E to A$2.88.
  • Net Profit Margin improved to 34.2% in FY24E, indicating better profitability.

• Valuation Ratios:

  • P/E Ratio: 2.4x for FY23E and 2.8x for FY24E.
  • Dividend Yield: 14.7% for FY23E and 12.6% for FY24E, net of 30% dividend tax.
  • ROE: 38.5% for FY23E and 28.9% for FY24E, showing strong return on equity.
  • Current Ratio: Improved to 6.7x for FY24E, indicating better liquidity.

• Key Risks:

  • Decline in coal prices.
  • Easing geopolitical tensions.
  • Higher-than-expected production costs.

Key Information

• Stock Performance:

  • 1-month return: 5.5% (absolute), -5.7% (relative).
  • 3-month return: 22.7% (absolute), -6.4% (relative).
  • 6-month return: 9.7% (absolute), 4.7% (relative).

• Shareholding Structure:

  • Yankuang Energy: 62.26%
  • China Cinda AM: 13.74%
  • Others: 24.00%

• Market Cap: HK$45,357mn.

• Dividend Yield: 18.2% in FY22E, 14.7% in FY23E, and 12.6% in FY24E (net of 30% tax).

• Valuation Sensitivity Table:

  • Shows the target price sensitivity to changes in WACC and long-term coal prices.

• Analyst Contact:

  • Wayne Fung, CFA: (852) 3900 0826, waynefung@cmbi.com.hk
  • Katherine Ng: (852) 3761 8725, katherineng@cmbi.com.hk

Summary Table

Conclusion

Yancoal Australia continues to demonstrate resilience in the coal market, driven by strong ASPs and a robust balance sheet. Despite challenges in production volume, the company's ability to command higher prices has supported revenue growth. The BUY rating and target price suggest confidence in its future performance, with a focus on potential dividend increases and value creation. Key risks include coal price fluctuations and geopolitical developments, which could impact the company's performance.