China Coal Energy Co., Ltd._ Risk Reward Update

Summary of China Coal Energy Co., Ltd. Research Call Company Overview - Company: China Coal Energy Co., Ltd. (Ticker: 1898.HK) - Industry: Coal and Coal Chemicals Key Points and Arguments 1. Price Target Update: The price target for China Coal Energy Co., Ltd. has been raised from HK$8.50 to HK$9.12, with a bull case of HK$11.37 and a bear case of HK$5.60 [1][3][8] 2. Earnings Estimates: Net profit estimates for 2024-2026 have been increased by 9-11% due to higher earnings contributions from coal chemicals, with EBIT forecasts for this segment revised up to Rmb3.8 billion from Rmb3 billion [2][4] 3. Valuation Model: The updated price target is based on a residual income model, now assuming a WACC of 9% (previously 7.4%), with an unchanged ROE of 8.0% and a terminal growth rate of 3% [3][8] 4. Stock Rating: The stock is rated as Equal-weight, reflecting cautious sentiment towards the industry [4][14] 5. Current Stock Performance: As of February 6, 2025, the stock price was HK$8.94, with a 52-week range of HK$10.76 to HK$7.22 [4][11] Financial Metrics - EPS Estimates: EPS for fiscal years ending in December 2023, 2024, 2025, and 2026 are projected at Rmb1.52, Rmb1.41, Rmb1.26, and Rmb1.10 respectively, with prior estimates adjusted upwards for 2024 and 2025 [4][24] - Revenue and EBITDA: For FY Dec 2024, revenue is estimated at Rmb178.86 billion, with EBITDA at Rmb40.17 billion and net income at Rmb15.51 billion [24] Market Dynamics 1. Coal Prices: The report indicates a tight market balance in domestic thermal coal, supporting long-term contract prices at elevated levels. However, a correction in contract sales price for domestic thermal coal is expected by 3% YoY in 2025, with spot coal prices shrinking by 12% YoY [12][13][19] 2. Production Costs: Unit costs are projected to fluctuate slightly, with a unit cost of Rmb353.8/ton in 2023 and Rmb355.3/ton in 2024 [19] Risks and Opportunities - Upside Risks: Potential for stronger-than-expected recovery in coal demand and higher realized domestic coal prices [25] - Downside Risks: Risks include a slowdown in coal price rally due to demand slowdown and deterioration of coal chemical margins due to lower oil prices [25] Ownership and Institutional Positioning - Institutional Ownership: The company has a high institutional ownership rate of 88.8% [23] Conclusion The research indicates a cautiously optimistic outlook for China Coal Energy Co., Ltd., with revised earnings estimates and a higher price target reflecting improved performance in coal chemicals. However, the company faces potential risks from fluctuating coal prices and market dynamics.