China Coal Energy Company Limited (1898) Earnings Call Transcript

Thank you for coming to the interim announcement for 2025 China Coal Energy. This meeting is for all investors. Please take the market with a rational approach, and we will have a Q&A session after the presentation. And now we'll have Mr. Jiang Qun kick off the meeting.

Distinguished investors and analysts, good afternoon. My name is Jiang Qun, Board Secretary of China Coal Energy. I welcome all of you to today's meeting. The attendees from China Coal are as follows: Executive Director and President, Mr. Zhao Rongzhe; Ms. Zhan Yanjing, Independent Non-Executive Director; and representatives and responsible persons from the Securities Affairs Department, Planning and Development Department, Finance Department, Coal Business Division, Chemical Business Division, Power and New Energy Division, and Marketing Management Office. We sincerely thank you for all your long-term support for the company. So firstly, I will talk to you about the performance of the first half and the work arrangements for the second half. Unless otherwise specified, the following data are prepared in accordance with the Chinese accounting standards. Firstly, I'll be talking to you about the performance and the characteristics in the first half of this year. During this period, China Coal Energy resolutely implemented the decisions and deployments of the Party Central Committee and the State Council and adhered to the strategy of improving efficiency for existing business and transforming new business. We responded to difficulties and steadily advanced the high-quality development. According to the Chinese accounting standards, operating revenue was RMB 74.44 billion. Total profit was RMB 11.94 billion, down 28.6% year-over-year. Net profit attributable to shareholders was RMB 7.7 billion, down 21.3% year-over-year. Basic earnings per share were RMB 0.58, down 21.6%. Under international accounting standards, operating revenue was RMB 74.44 billion. Profit before tax was RMB 11.6 billion, down 35.5% year-over-year. Profit attributable to distributors was RMB 7.325 billion, down 31.5%. Basic EPS was RMB 0.55, down 31.8%. So here's our characteristics for the first half of this year. Firstly, we efficiently organized the production and continuously strengthened production sales coordination. We focused on optimizing production layout and fully only shipped a high-quality managed mining capacity, produced 67.34 million tonnes of commercial coal, an increase of 0.84 million tonnes or 1.3% year-over-year. By focusing on maintaining market share and fulfilling long-term contracts, we actively adjusted marketing strategies, optimized resource allocation, precisely responded to market changes and effectively withstood downward pressures. Self-produced commercial coal sales was 67.11 million tonnes, up 920,000 tonnes or 1.4 million tonnes year-over-year. The company efficiently coordinated safe production with equipment overhauls, producing 2.988 million tonnes of key coal chemical products, an increase of 61,000 tonnes of 2.1%. We continue to optimize production structure and sales rather. Sales of key coal chemicals totaled 3.166 million tonnes, an increase of 83,000 tonnes or 2.7% year-over-year. We dynamically optimized the product structure, deepened the standard cost management, and did comprehensive benchmarking to uncover cost savings opportunities across the process. Unit sales cost of self-produced commercial coal was CNY 262.97 per tonne, down CNY 30 or 10.2% year-over-year. Key reductions came from optimized production, organization lowering material cost by CNY 5.9 per tonne, rational wage control, reducing labor cost by RMB 6.09 per tonne, increased use of safety and maintenance funds, lowering other costs by CNY 25.31 per tonne. However, depreciation and amortization, transportation port charges and outsourced mining engineering fees increased by CNY 9.22 per tonne year-over-year. We focused on the goal of safe, stable long-term full capacity and optimum and strengthened equipment management, optimized plant operations and reasonably controlled costs and expenditures. Unit sales costs of major products remained stable. Specifically, unit sales cost for polyolefins rose to CNY 6,431 per tonne, up CNY 565 per tonne due to planned overhauls. Unit sales costs for urea and methanol fell CNY 162 per tonne and CNY 401 per tonne, respectively, due to lower raw and fuel coal prices. Unit sales cost for ammonium nitrate rose RMB 81 per tonne due to reduced byproduct income offsets. In the first half, prices for our coal and coal chemicals declined with the rest of the market. Average sales price of self-produced commercial coal was CNY 470 per tonne, down CNY 114 per tonne, down 19.5%. Thermal coal was CNY 436 per tonne, down 14.7%. Coking coal was CNY 885 per tonne, down CNY 486 or 35.4%. Proprietary trading coal was CNY 472 per tonne, down CNY 131 or 21.7%. Polyolefins sold at CNY 6,681 per tonne, down CNY 274 or 3.9%. Urea was CNY 1,756 per tonne, down CNY 411 or 19%. Methanol was CNY 1,770 per tonne, down CNY 3 or 0.2%. Ammonium nitrate at CNY 1,883 per tonne, down CNY 291 or rather CNY 295 or 13.5%. Despite falling coal prices and significantly lower industry profitability, the company maintained stable operations, achieved total profit of RMB 11.94 billion. Main factors are -- the profit increasing factors include the following: lower unit sales cost of self-produced commercial coal boosted profit by RMB 2.044 billion. Taxes and surcharges were RMB 537 million less. Expenses were down RMB 284 million. Increased sales of self-produced commercial coal added RMB 265 million. Power business added RMB 208 million. Impairment provisions were down RMB 153 million. Profit decreasing factors include the following: lower self-produced commercial coal prices cut profit by RMB 7.639 billion. Lower chemical prices and the planned maintenance reduced profit by RMB 774 million. In the first half, the company actively strengthened cash flow management with a cash collection ratio of 110.1%, a decline 7.2 percentage points less than the revenue drop. Asset to liability ratio was 45%, down 1.3 percentage points from the beginning of this year, reflecting improved financial structure. Five, accelerating key project construction, advancing the 2 joint ventures. In the first half, construction of the Libi and WISCO coal mines progressed smoothly. The Wushen banner 2x660 megawatt coal power integration project commenced smoothly. The civil construction for the 900,000 tonne Phase 2 polyolefin project in Yulin Shaanxi were essentially completed. Construction accelerated for the 100,000 tonne Liquid Sunshine demo project in Tuke and the 100-megawatt Phase 3 PV project in Pingshuo. The Antaibao low-calorific coal power project achieved nearly RMB 100 million of profit in the first half. Pingshuo Phase 1, Phase 2 and Shanghai Energy Phase 2 were all connected to the grid. Six, actively rewarding investors with the continued interim dividends. Since its listing, the company has distributed over RMB 40 billion in cash dividends, balancing shareholder interests with sustainable development of the company. For 2025, the interim dividend ratio remains the same as 2024 with a proposed cash dividend of RMB 2.198 billion or RMB 0.166 per share, tax included. This is expected to be fully distributed by the end of October 2024 -- rather 2025. Now I'm going to talk to you about the key work arrangements for the second half. The company will continue to implement decisions for the [ Earth Day Party Central Committee ], State Council and SASAC, adhering to the principle of seeking progress while maintaining stability, firmly committed to high-quality development goals. First, we will strengthen production sales coordination to achieve annual production and sales targets. Second, we will keep enhancing lean management and cost control to maintain a decent level of profitability. Third, we will improve our capabilities to reinvent ourselves and accelerate key project build-out and lay a solid foundation for a good start to the 15th 5-year plan. Four, we will advance reform initiatives to unleash internal drive and innovation vitality. Five, we will keep implementing the innovation-driven strategy to build new productive forces with China core characteristics. Sixth, we will strengthen penetrative supervision to safeguard high-quality development of the company. Seven, we will keep enhancing corporate governance and information disclosure, deepen investor communication and maintain a positive image in capital markets. Distinguished investors and analysts, the company's management and all employees will remain confident, work diligently and continue promoting high-quality development and strive to deliver better results to reward all shareholders and investors. Thank you all for listening. Now we will go to the Q&A session and answer your questions as much as we can. Thank you.

Thank you very much for that presentation. Now we are at the Q&A session. [Operator Instructions].

I'm Yan Chen from CICC. Congratulations on achieving such good results while the coal prices are dropping. I have two questions. So the first question is regarding changes in supply and its impact on coal prices going forward. And you have done a very good job managing your costs. So the first question is regarding the impact on prices from cracking. So for the second half, how would you comment on your cost management?

So Mr. Chai will be answering the question regarding coal prices.

So we have seen another drop in prices. Then there was a recovery in mid-June. As of 20th of August, so it was level. So over that 1 month, the prices rose from CNY 615 to CNY 703 per tonne. So I think that was within the expectation of the market. So overall, our judgment is this: Spot prices is now RMB 600-something. So it was actually beyond the expectation of the regulators, because according to the judgment of the regulators, in 2019, the average prices should be RMB 675. So Jan through June, so the overall production volume was up by 5.4% and imports were about 300,000 tonnes. Increase was close to 100 million tonnes. So the increase has also exceeded expectations, and that has led to the drop in prices directly. Going forward, we have seen notices and notifications from the regulators. So it's not just about simply defense, right? So we have seen the willingness from the central government. So we have seen regulations regarding productions, and caps and limitations on productions imposed. So going forward, I think the long-term prices will be RMB 675, spot prices will be around RMB 700. So that will be within the expectation for both the supply and the demand side. Inventory is still on the rise this year. So import plus domestic production was RMB 100 million less -- RMB 100 million more. So the total inventory in the market is about 30 million tonnes. So supply this year is still pretty loose. It hasn't really changed from last year. So I think stabilizing is the overall trend. I will stop here.

Thank you very much, Mr. Li. So regarding the question about the cost, Ms. Du from our finance department will answer that question.

So the sales cost was down by 10%, RMB 30 per tonne. And this was because we deepened cost management, including things like procurement and betting, so we kept optimizing the cost management. So material cost was down by RMB 5.9 per tonne. And we also controlled our wages, so that was RMB 6 down. And we also enhanced -- reduced the usage of the revenue funds. So that was RMB 25 per tonne down for the overall year. For the second half, especially Q4, there will be some overhauls and maintenance and the wages will be higher in Q4. So there will be some additional investments as well. So overall cost will be higher for Q4. So we'll continue to enhance our measures and try to maintain the aforementioned levels for the overall year.

Mr. Chen, do you have anything else to add?

It was super clear.

Phone number ending in 1791, please state your name and affiliation before you ask your question.

My name is [ Wang Tao ]. I'm a coal analyst from Oriental Wealth Securities. So I have 2 questions. Regarding the prices of thermal coal, I understand that the proportion of your long-term contracts is pretty high compared to all listed coal companies. But Q2 compared to Q1, thermal coal prices actually dropped more than long contract coal, but less than spot coal. So with the proportion of long-term contract not changing much, did you give some more profits to your suppliers in order to keep this proportion of long-term contracts? Second is this acquisition project, the Shenhua deal. And you were one of the buyers or acquirers. Do you have any updates on that deal and relevant assets?

Thank you very much for your question. Mr. Li will tackle the first question.

So regarding the prices of long-term contract coal. So the discrepancy there, we think there's two reasons -- two causes. So the data you quoted was pretty accurate. So Jan through June, long-term contract coal price drop was not very much. It was about 3.6%, so RMB 25 down, and the recovery started in June. Spot prices were down by almost 11%. So fulfillment dropped in June and picked up in July. And so there was no fundamental changes to our long-term contract play. So when the market changes, the group did some changes to the metrics and the structure of the spot versus long-term contract. So the slopes were slightly different. The quality of coal improved. So for spot coal, the prices dropped slightly. So I think that was the main reason. So we did not deliberately try to give more profits to our suppliers because everything is under very strict scrutiny by the regulators. So strictly we have been adhering to the requirements from the NDRC. For the second question, so our company, Shenhua, acquired relevant assets from coal and other business lines. It was a pretty big deal and caused some reactions in the capital markets. So we paid attention to this deal. So China Coal still has some assets when it comes to coal and coal power. So these assets -- we do not exclude the possibility of giving these assets to China Coal Energy or have them spun off in the capital markets as separate entities. We do not exclude these possibilities. If it materializes, we will disclose the relevant information. But right now, we don't have any such plans.

Sounds good. We have been tracking your development. And we saw that over the long term, your image in the capital markets has been very decent, and I wish all the best for all of you. That ended my question.

Phone number ending in 6402, please state your name and affiliation before you make a comment.

I'm [indiscernible] from Minsheng Securities. Congratulations on achieving such good results for the first half of this year. I have two questions. Firstly, when we look at the profitability for your subsidiaries, for Wuda coal mining, it improved 50% compared to last year. So why is that? Second, so for Dahaize mining, it's also expanding the channels. I would like to ask what the sales structure was like before for Dahaize? Were changes made to it this year?

Thank you. Mr. Li will be talking to you about the sales network, and my other colleagues are looking to the other question.

So thank you very much for paying attention to Dahaize sales. So there was a limitation factor to its production. So it's primarily direct shipment by rail. So that accounts for almost 70% of its total sales. The rest is about 20-something percent, because it's direct sales -- direct shipment by rail. So Dahaize sales experienced some difficulties for the first half. And based on this, we were trying to address it. We were trying to like expand its channels. So now the channel is already available. But this channel only serves as a complement. It won't be a major channel. The question regarding Wuda. So profitability actually improved for Wuda because we did a good job of managing the cost for '25. Volume was pretty good this year, there was a slight uptick. So there was a cost reduction. So cost reduction was more than there was a price decline. That's why the profitability improved.

Phone number ending in 9990, please state your name and affiliation before you make a comment.

I'm Xixi Zhang from Tianfeng Securities. I have a few questions for you. So for Wangjialing mine, there was a stoppage because of the accident. What happened after that? And is everything back to normal? And for polyolefin overhaul, is the equipment back to normal? And what's your take or estimate on coal prices for Q4?

So regarding Wangjialing coal mine, Mr. Wang from the coal business department will answer that question.

So investigation has finished and production has resumed. So regarding polyolefin, Mr. John will take that question from the Chemicals department.

So 2 companies were involved. So the Shaanxi company overhaul started on May 10, so it was 37 days of overhaul. The other company started overhaul on June 16 and resumed on July 28. So both overhauls have finished, production has resumed.

So coal prices for Q4, [ Yingping ], could you talk briefly about it?

As I mentioned earlier, so for thermal coal prices, for the second half, we already talked about. So it's kind of stabilized. Long-term contract prices will be RMB 690. Spot prices will be about slightly over RMB 700 per tonne, barring any accidents or incidents. So each year, after September, coal will enter a pretty stable supply-demand equilibrium, and some volatility will be observed in October and November typically. But this year, supply is kind of on the strong side. So we think there will be a big volatility to the prices. You mentioned Wangjialing. So for metallurgy coal, there was a jump of RMB 300 to RMB 400 per tonne. So our overall judgment is this: For steel and metallurgy, there's not a whole lot of incentives or demand coming online. So there's no structural changes. Imported coal came down by 11% -- well, imported call came down by 7.5% as opposed to the overall decline of 11%. So some metallurgy coal companies are producing metallurgy coal pretty stably. So we don't see a huge jump for the second half. So that was internal factors. As for external factors, we don't see any significant drivers. So we believe for metallurgy coal, so coking coal might be 1,500 to 1,600. So yes, it will be around that range, 1,500 to 1,600 or 1,300 to 1,400, not much volatility there.

Now we have a question from the web portal. There's two questions. So first question is when will the peak of the investments end? And so CapEx for the first half was a 32% increase. Why is that? Mr. Yang will take that question.

So for 2025, so RMB 6.972 billion was invested as of June. So Jan through June, we already completed 92% of CapEx. So that was 92% out of RMB 21.7 billion for the entire year, given our recent considerations and the decision-making. So CapEx will be about RMB 20 billion for the next 3 years on average.

Thank you very much, Mr. Yang. Mr. Yang referred to how our CapEx plan was impacted by the construction progress of different sites, including the schedule, climate. So there's no monthly average. It's got its own pace and cycle. So the current progress has met the expectation and requirements. Thank you.

So, phone number ending in 7654, go ahead.

I'm [indiscernible] from [indiscernible] Merchants Securities. So we saw that your production volume increased, but there was a slippage in July. What was the reason for the slippage? Was it because of the relevant policies? And what's your overall target for production this year? Second question is regarding coal chemicals. So we saw some messages about anti-competition, and how there might be a slowing of projects of polyolefin and other projects. How will that impact the profitability of your coal chemicals? And how will that impact your CapEx plan going forward?

Regarding the change in production volume in July, Mr. Wang will take that question from Coal Chemicals -- Coal Business department rather.

So there was impact from Dahaize. Dahaize's volume is pretty high. So as for our annual production target, so it stays the same as what we said in the beginning of this year. So actually, it hasn't changed. I'm just going to add to that. And because of the accidents, production volume has been impacted. And also, there was an impact from weather conditions. Because we had to be compliant with the local regulators, so production volume was hit, but we are confident to reach our annual target set at the beginning of this year. So regarding coal chemicals, the slowing of methanol and polyolefin projects, so that's not going to have any impact on our profitability for coal chemicals. So the policy, like you said, is to prevent further disorderly competition, and it's part of the 15th 5-year plan. So for new projects, there's 2 projects that are pertinent to us, Phase 2 in Shaanxi. So for the Phase 2 in Yulin Shaanxi, this policy will not have any impact on that project. There's another project on our methanol project. So the preliminary work of that project has already commenced. We're waiting on further clear guidelines from the regulator before we proceed. That was my answer.

Phone number ending in 1683, please state your name and affiliation before you ask your question.

I'm [indiscernible] from [ Shandong Industry Development Foundation ]. I have several questions -- a couple of questions regarding coal chemicals. So RMB 2.9 billion is a depreciation for Chemicals for Phase 1 reading. And the projects in Mongolia, they have been around for 10-something years now -- around 10 years now. So when will the depreciation of the equipment for the Chemicals be over? So will you be able to unleash depreciation profits? The maintenance fee was about RMB 1 billion. And will the repair costs go up significantly after that? Or will you do complete replacement of the equipment?

Are you going to ask all your questions? Or do we answer your questions one by one? Okay. So why don't we take that question first? [ Ms. Zhou ], could you answer the question regarding depreciation?

So the depreciation period is about 20 years for Chemicals equipment.