Earnings Call: H1 2024

Aug 31, 2024

Summary

H1 coal and chemical output rose, but revenue and net profit declined. Cost controls lowered unit costs and financing expense, while capacity expansion, project development and shareholder returns remained priorities.

Analysts, investors, friends, ladies and gentlemen, good morning. First of all, on behalf of Yankuang Energy, I express our heartfelt welcome to all of you who are here, and a big thanks to all of you for the long-term care and understanding and support to the company. In the first half of the year, the world has experienced very complicated economic situations. The energy industry has accelerated its reform. Facing such challenges, our company continues to focus, to address, and also to optimize our capacity and operation, as well as lean management based on science, based on researches, and based on market-targeted measures. We were successful in addressing these challenges. Our production basically is in line with what is expected. Now, I will walk you through our performances in three parts. The first part would be the review of our performance. As far as our commodity coal is concerned, we have produced 69.08 million tons. That is a year-on-year increase of 19.85 million tons, and that is in line with our target for the first year. Our chemical products production was 4.18 million tons. That is an increase of 460,000 tons. This is a historic high. Our sales revenue, CNY 62.2 million, that is a decline of CNY 3.2 billion or 5%. Our net income, our net profit has come down by CNY 2.9 billion at CNY 7.4 billion. Our total asset is CNY 418.8 billion, and our shareholders' interest is CNY 87 billion. Our operating cash is at CNY 9.6 billion, and our operating cash ratio is 15.5%. This is highly a very good address to the external challenges. It also tells about our accurate judgment regarding the market, as well as our internal efforts to lower our cost, to increase the capacity, and also to look for important markets. This is a very active measure of us to increase our growth and enhance our efficiency. That is a huge, good fundamental for further development. Secondly is that we were able to meet the increased capacity targets in a very safe and very stable way. With various wells and various measures, we have been able to release such maximum capacity. With Lushanmo Mine, we have 21.4 million of capacity. That is an increase of 2.26 million. The same applies for the Australian mines. Our production has continued to increase at 19.67 million tons. That is a year-on-year increase of 2.74 million tons. With the Luxi Mines, it has been increasing its capacity and is a contributor of 15.56 million tons. With our main mines being very effective and efficient, they have played a main role in achieving this objective. The chemical industries, we have been able to grasp the good opportunity of prices increasing. Also, we were able to push forth effective lean and adaptive policies, and that had given us CNY 1.1 billion more of revenue at CNY 125 billion. Third is that we had been able to cut our costs and control our costs very effectively. We have been effective in cutting such costs under very stringent conditions. We went for low waste, control of cost, control of financial cost, and also procurement cost. So we had been able to push forth this cut in cost in eight major areas. So we had been able to rebuild a very healthy inventory. We also enhanced our human resources management. Our per ton cost is at CNY 365. That's a year-on-year improvement of 6.4%. As far as chemical product is concerned, we have been able to increase our production. The methanol unit sales cost is at CNY 1,532 per ton. That's a year-on-year decline of 17.8%. With acetic acid, the cost was at CNY 2,343 per ton. That's also an improvement of 8.9% year on year. We have been able to manage our loans to lower our financial costs. It has come down to 3.2%, which is a historic low. We have actually saved a total of CNY 260 million. We have capitalized from H share CNY 4.5 billion. We have also been able to stabilize our price in terms of negotiation skills and our sales strategies. We had been able to enhance our high-value customers at an average price per ton of CNY 667.6. This price gives us a better position when compared with our peers. We continue to break through with our mining industry. We had been focusing on the important projects stipulated by the country to focus on reform and the eight major projects, of which we were able to build high-quality projects. With mining, we have five capacity projects that we had made certain breakthrough. With the Wucaiwan No. 4 open pit, the procedures are already completed. In Huolinhe No. 1 mine, we had been able to receive approval for the overall mining project. The Liusangedan mine and the Caosiyao molybdenum mine, we had already finished the exploration product, and we are expediting with the application procedures. With Galutu mine, the exploration procedures have been completed for the first stage. With high-end chemical new material industry, we had the Rongxin Chemical 800,000 tons of olefin project already beginning. With the Future Energy, the 500,000 tons of high-temperature project also had gone through approval. With the Xinjiang Weidong 800,000 tons of olefin project, we basically are ready for operation. This is a very good foundation. As far as mine operation is concerned, we are moving towards intelligent and green direction. We had built 21 pairs of national intelligent demonstration standard mines with a 94% of intelligent mining. We also had been able to apply the 5.5 meters to over 8 meters high mining face self-adaptive technology and were able to receive for such technology, the National Science and Technology Progress Award. We had been promoting green technologies and also were able to enhance our capacity by 1.98 million tons. As far as chemical product industry is concerned, we have been able to extend our value chain. With the Lunan Huagong, Lunan Chemical project, we had been able to use the 3,000 tons, which is the world's largest OMB multi-nozzle equipment, teamed up with opposing pulverized coal pressurized gasification devices. We also have been able to promote the energy-saving and carbon-reduced capacities in these projects. We had also been able to build high-end, zero carbon emission, and intelligent in Luxi. The first six projects had been able to start, and we had been able to research the world's largest 12,000 tons crusher. Now, with our cluster in intelligent logistics that had already been expanding, we were able to expand our capacity and to connect between more freight owners as well as customers. We were able to build ourselves as an integrated service provider in the international logistics market. We were able to build a physical logistics plus platform through the acquisition of the Wubo Technology Logistics Company, and we have been able to promote our capacity and to connect the West and East so that coal from the West can be used in the East. As far as new energy industry, that had been increasing steadily. We had been meeting our targets and building new projects. We had been able to win the bid for the 180,000 kilowatts on land wind farm project. Our other projects in the Inner Mongolia and Shandong province is also proceeding, especially with the coal mining subsidence area wetland surface photovoltaic project. We had been enhancing the return for our customers via dividends payout. We have decided for interim dividend in 2024 to be CNY 0.23 per share. We are returning our shareholders with hard cash. We also had issued a placement of CNY 300 million in order to show our confidence with the company and our connection with the shareholders. We also had a plan for 2024 to increase capacity and also to enhance our ESG projects, as well as the use of capital and efficient management in order to create further value. The second part of my presentation would be about major market analysis. For the coal market in the first half, the supply was relaxed and the import was high, and it was impacted by hydroelectricity, therefore, the coal market had been fluctuating. Therefore, for the next half of the year, we anticipate that the coal price would be rather high and the fluctuation would narrow. Because of some of the growth measures and the coal as a fundamental element of the energy structure would continue to be demanded. Going forward, we think that this demand would relax a bit. International coal market influenced by India, Southeast Asia, and the increase in demand in these countries. The supply is relaxed. However, we believe that consumption would remain high. As far as chemical is concerned, in the first half of the year, the demand had improved and supply has also been relaxed. Therefore, there had been a small increase in price. With the next half, with methanol and acetic acid, these fundamental products has been influenced by the import prices, and the price would continue to remain at a rather high point. Thirdly, operating measures. The energy industry has been going into reform in a very deep and broad way, and competition has been increasing. Through the series of measures for the nation towards the reform, towards the green and lean management. We believe that coal will continue to serve as a safety net as far as the energy structure is concerned. As the next half of the year, we will continue to grasp the opportunity and practically manage our management and go for efficiency and profit, whilst safeguarding safety. We would lower our cost, we will grasp major projects and enhance our capacity. Our strategy is to ensure that our core industries are doing well and to enhance the industry chain so that we can be stronger and better. The first point is to continue to support the core mining industry, to enhance on our capacity building and also to focus on those industries that we are good at, and to ensure that the projects can meet the target. As far as July and August is concerned, these targets have been met. Our capacity was high. We will continue to make sure that this will continue. Year-on-year, our capacity for coal had increased by 30 million tons, and of which the Luxi Guanyan and the Xinjiang Nenghua had increased by 22 million tons. The Shaanxi-Mongolia mines have increased by 5 million tons. With our Australian mines, it had increased by 4 million tons. Secondly, we will continue to push for newer projects so that our Wanfu mine could be operational by end of 2024. Our Wucaiwan No. 4 open pit, we target to finish its building by the end of 2024, and also to divest Jianmei in 2025, and to try with the Huolinhe No. 1 mine to finish building in 2024. Also with Chaoxiao and Liusangedan mines, as well as the Galutu mines, we will expedite our exploration procedures. Our target is to, within three years, have all of these projects become operating and to contribute an additional 45 million tonnes of capacity. We would also go for synergies between resources and capital, and also to get good quality coal and electricity resources to expand our business. Secondly is with the high-end chemical new material, we will continue to strengthen this chain and to enhance the composition of high-value-add products, and also to enhance our capacity and competitiveness so that our annual production can have a breakthrough of 8 million tonnes. We will continue to push for the integrated new material, new energy project in Lunan Huagong so that it can go into operation by this year-end. We will continue to enhance our competitiveness by nurturing new industries so that we can enjoy from such synergies. With high-end equipment manufacturing industries, we will enhance our development of the Luxi intelligent manufacturing park so that it can have a breakthrough of CNY 1.5 billion of revenue. We would continue to build the project similar to the SMT Scharf AG project, and also to build a very modern physical plus platform model for our intelligent logistics industry to integrate Luxi, Xinjiang, as well as the other main rail lines to enhance the deployment of logistics point to connect the Grand Canal and the Yangtze River main projects. Also with the Tai'an Port Transportation Logistics Phase 2 project, the Sihe Port project. All together, we anticipate that the overall 2025 capacity to reach beyond 500 million tonnes. With new energy, we will continue to push our projects in Xinjiang and Inner Mongolia. Thirdly is to enhance our lean management and improve our efficiency in eight different measures. We would ensure that there is effective control of production cost in management cost so that production cost can come down by 3%-5% per tonne. Also as far as management cost is concerned, we will focus on six areas of management to enhance our human resources and to keep a lean and mean team. We will continue to lower the cost of our capital to enhance the management and to ensure that our capital cost would come down to below 3.2%. We would also stringently control our capital cost. The plan for the entire year is CNY 19.7 billion. We will enhance the use of capital. At this time, we have sufficient cash and capital, and our financing channels are smooth, so this will give us a very good foundation for further development. We will also optimize our sales strategy in terms of our geographic location, our products, customers, as well as the flow of our products. We will strike for a CNY 250 million of increase in sales, and we will continue to push for the metallurgy, the coking coal, and the PCI coal market. We will also use localization strategy and other measures like social storage in order to cut down our cost to below CNY 200 million. Ladies and gentlemen, we have accumulated 20 years of rich experience. We are highly confident about meeting our goals for the year. In facing challenges, those who strive would win, and we will keep our relentless focus and commitment to deliver on our development strategy and our targets, both internally and externally. We also would push for capital operation as well as manufacturing operations in order to create stable and long-term company value, so that in the ever-changing world ahead, we will continue to create the best returns for our shareholders and other stake owners. Thank you.