Earnings Call: H2 2023

Mar 29, 2024

Ladies and gentlemen, good morning. First of all, on behalf of Yankuang Energy, I would like to extend a warm welcome to all investors and friends attending this meeting, and express my heartfelt thanks to everyone for your long-term care and support for the company. Now, I am going to report to you the group's operating performance in 2023, market analysis of key products, operation goals for 2024, and measures. First part, operating review. In 2023, the macro economy is very complex and severe. The energy market fluctuated sharply. In face of these difficulties and challenges, Yankuang Energy has always maintained our strategic focus, strengthened our confidence in development, vigorously implemented targeting work measures, accelerated the release of advantageous production capacity, deepened implementation of lean management, deeply tapped internal potential to reduce cost and consumption, and tackled key projects. We effectively overcame the adverse effects of downward fluctuations in coal price. The development of the five major industries has achieved remarkable results. Operating performance remained at historically high levels. Results overview. Production volume of sellable coal, 110 million tons, up 10.49 million tons, ranking first in the industry. Two, production volume of coal chemicals, 7.89 million tons, up 1.08 million tons year-on-year. This is a historical high level. Sales revenue, CNY 118.4 billion, up 23.4% year-on-year. Equity attributable to shareholders or net profit, CNY 17.8 billion, down 41.6% year-on-year. Profitability level ranked among the top in the industry. Total assets, CNY 414.3 billion, up 33.6% year-on-year. Six, equity attributable to shareholders is CNY 86.9 billion, ROE 20.5%. Seven, net operating cash flow, CNY 22.6 billion, operating cash flow ratio 19.1%. Number two, industrial development has achieved remarkable results. In 2023, the group focused on stock optimization and incremental leapfrog. Based on overall improvement of the five businesses, we continue to optimize regional layouts and resource allocation, promoted transformation and upgrading of traditional industries, made breakthroughs and upgrades in emerging industries, and built a solid industry cornerstone for high-quality development. Mining, strengthening outstanding business. The coal industry is increasing and improving quality. Production of the Australian base recovered strongly with year-on-year increase of 4.5 million tons. We acquired Luxi Mining. Xinjiang Energy Chemical added 25.6 billion tons of coal resources, and an approved production capacity of 39.89 million tons. We successfully bid for the number one well in the Huolinhe mining area in Inner Mongolia, and we acquired 1.04 billion tons of coal resources. We accelerated construction of intelligent mines, invested CNY 2.8 billion, and built 59 intelligent mining working phases, accounting for 94% of coal output. Selling price fluctuated at middle to high levels. We scientifically studied and judged market trends, dynamically optimized product structure, focused on increasing the proportion of clean coal products, and flexibly implemented the withholding and slowing down sale strategy. ASP remains at a medium to high level. ASP of self-produced coal was CNY 835 per ton. Domestic ASP, CNY 710 per ton, overseas, CNY 1,031 per ton. High-end chemicals and new materials, breakthroughs in various aspects. Chemical production reached a record high. Coal-to-liquid production for the first time reached 1 million tons. Coal to gas production exceeded 2 billion cubic meter. For high-end coal chemical projects, we accelerated construction. We conducted a trial run of the caprolactam integration project, where a 3,000-ton OMB pulverized coal gasification device was adopted. This is the largest single unit in the world, and we commenced construction of a 60,000 ton per year POM project. After completion, total capacity will increase to 140,000 tons per year, ranking first in the country. Three, high-end equipment manufacturing, growing stronger and faster. A high-end equipment manufacturing park will be built and put into operation. Luxi Intelligent Manufacturing Industrial Park put into operation, six JV enterprises settled in the industrial park, set up an international equipment manufacturing platform in Europe through acquisition. We strategically acquired Germany's SMT Scharf AG, and we have the first smart green zero-carbon industrial park. As said just now, we set up international equipment manufacturing platform in Europe through acquisition. We strategically acquired Germany's SMT Scharf AG, and established an advanced R&D platform and a talent recruitment base. Four, smart logistics, integrating operations to add value. Five-in-one development manifests competitive advantage. The integration of six railway assets, including the Yitai-Huzhun Railway and Yingpanhao Container Station in the Shaanxi and Inner Mongolia regions, was completed. Total mileage of railway operations exceeded 1,300 kilometers. Caiyan Port road, rail, water intermodal transport logistic park was completed and put into operation, with handling capacity of 32 million tons. The five-in-one development pattern of railways, highways, ports and shipping, parks and platforms, has initially taken shape. Logistics and freight capacity had reached 300 million tons per year. Logistic system of production, sales, storage, distribution, and transportation takes shape. There is synergy between various businesses through combination of various means of transportation and coordination between logistics and sales operations, and integration of logistics and trade. We form strategic partnerships with leading companies in the industry. Five, new energy progressing steadily, adhering to synchronous advancement of quota approval and project construction. A number of distributed PV projects have been started, and three PV power stations have been connected to the grid. Projects such as integration of source grid loads and storage in Shaanxi, Mongolia, Xinjiang have been advanced in an orderly manner. Number three, good results in value creation. Lean management releases room for profit growth. We continue to expand financing channels, replacing high interest rates with low interest rates loan, and replacing short-term bonds with long-term bonds. Average financing interest rate dropped to below 3.6%. Financial expenses decreased by 36% year on year. Yancoal Australia paid off all interest-bearing debts to achieve zero debt operation. Asset liability ratio dropped to 25%, a record low. Deepen management efficiency improvements and asset quality improvement and implemented budget control and asset inventory. We continue to strengthen cost reduction and consumption reduction through management and control measures such as activities, material management, and staff efficiency improvements, achieving annual cost of sales of CNY 381 per ton. Among them, price in the second half of the year dropped by CNY 16 per ton compared with first half. Yancoal Australia's cash costs remained the lowest in the Australian industry. Unit cost of methanol, CNY 1,715 per ton, year-on-year decrease of 11.4%. Unit sales cost of acetic acid, CNY 2,380 per ton, down 10.6% year on year, showing significant cost reduction results. Generous feedback created a shared model. Since listing, the group has always adhered to concept of shareholder first value sharing, and was the first among central enterprises to adhere to a high proportion of cash dividends. After listing, the group has distributed a total of CNY 77 billion in cash dividend, becoming a model of sincere returns to investors. The group will increase dividend ratio from 2023 to 2025 to 60% of net profit. In 2023, it is planned to distribute a cash dividend of RMB 14.9 for every 10 shares with total dividend of RMB 11.08 billion. It is planned to issue 3 bonus shares for every 10 shares. Total share capital will increase from 7.44 billion shares to 9.67 billion shares. ESG construction. At the forefront of the industry, adhering to ESG strategic policy of green, low carbon compliance and transparent and sustainable development, we have fully integrated ESG concepts into all areas of corporate governance, covering entire production and operation process. We have disclosed ESG reports for 16 consecutive years, becoming the first company in China to pass ESG management system certification, and ranking first in the domestic industry in the CDP International Carbon Disclosure plan. Enhanced brand image. With excellent performance, standardized governance, and stable operation, we have won high praise and recognition from the industry and capital market. We won honors such as the Golden Bull Award, top 100 companies with the highest investment value, disclosure rating by Shanghai Stock Exchange, A. We won National Quality Award by China Association of Quality for 3 times, and we are ranked 68th among Fortune China's top 500 listed companies. Part 2. Market analysis of key products. Analysis of coal markets. China's coal production capacity will continue to be released in 2023, but growth rate of production volume declined significantly. International supply situation has improved. Imported coal has increased significantly. Overall supply and demand has shown a loose pattern, and prices remained at historical high levels. Looking into 2024, the Chinese government will further implement economic policies and the economy growth resilience supports electricity demand and coal consumption in power, chemical, and other industries will continue to grow. The role of coal as a bottom line guarantee is more significant. The coal industry continues to have a strong supervision on production safety, and imports are expected to decrease. Domestic coal supply has limited room for growth. Internationally, major coal supply countries such as Australia and Indonesia have limited production capacity. Southeast Asia has its demand growing rapidly. It is expected that domestic and international coal price will maintain mid-range fluctuations within a narrow range and remain at mid to high levels in the long term with stable profits margin. Analysis of coal chemical markets. In the first quarter of 2024, domestic economy steadily improved. As economic development continues to rebound, it will drive growth of chemical market demand, improve the loose supply pattern, and promote bottoming out of chemical prices. Among that, market supply and demand relationship of basic chemicals, such as methanol and acetic acid, will improve. Competition and price advantages of fine chemicals, such as caprolactam and POM, will improve. Part 3, operation goals for 2024. After comprehensively studying and judging changes in the macro situation and coordinating speed and quality, efficiency and effectiveness, development and safety, economy and environment, our group have formulated business goals for 2024. Production plan. Saleable coal production target is about 140 million tons, a year-on-year increase of 30 million tons. Output target of coal chemicals, 8 million tons or more, and variety structure is further optimized. CapEx plan. Capital will be invested mainly in incremental profit-creating projects, such as mine construction and high-end chemical new materials in the Shaanxi, Mongolia, Xinjiang region, with CapEx plan of RMB 19.7 billion. Among that, 10.2 billion is for maintaining simple reproduction, 4.8 billion for mine construction projects, 1.8 billion for high-end chemical new material projects. Unit cost of sales. Strive to reduce sales cost per ton of coal by 3% to 5%. Sales cost per ton of methanol and acetic acid will be reduced by more than CNY 90 and CNY 120 per ton. Debt-to-asset ratio. While meeting cash flow expenditure for production operations investments, M&A will actively promote leverage reduction and debt reduction. We strive to control debt-to-asset ratio to below 60%. Part 4, operational measures in 2024. Currently, the global energy landscape is accelerating changes and competition in the energy industry is becoming increasingly fierce. China has successfully implemented policy to boost domestic demand, such as large-scale equipment updates and trade-in and upgrade of consumer goods. At the same time, it is accelerating construction of new energy systems and promoting green, low carbon, high quality. For our group, opportunities outweigh challenges and hopes outweigh difficulties. The two-way empowerment advantages of traditional energy guarantee and new energy cultivation and accumulation are more prominent. We will take the new green and low-carbon development concept as the guide to optimize and upgrade traditional industries and cultivate and expand emerging industries, further promote new industrialization and create new quality productive forces. 2024 is the critical period for the group to consolidate its transformation advantages and accelerate green, low carbon, and high-quality development. We will focus on development of new productive forces and green and low-carbon transformation to achieve development goals of the 1385 key projects in about five years. One, we will build a first-class enterprise. In accordance with the 16 character standard of excellent products, outstanding brands, leading innovation, and modern governance, we will accelerate construction of a world-class, sustainable, clean energy-leading demonstration enterprise. Three, starting three main tasks. We will carry out the three main tasks of achieving production and efficiency, increasing revenue and reducing expenditure, and building key projects. Eight, undertaking eight key projects. We will accelerate the advancement of eight iconic and leading major engineering projects to lay a solid foundation for transformation and development to reinforce our position. Five, realizing five leaps. First, the scale equivalent and comprehensive strength have achieved new leaps. We will promote strong growth in economies of scale and ensure that operating indicators remain at the forefront of listed companies in the same industry. The second point is green and low-carbon transformational breakthroughs and leap forwards. We will focus on the dual-carbon goal, build green mines, green factories, green parks, and increase proportion of green energy. Third, governance with standards and efficiency. We will enhance transparent governance, and we will forge a Yankuang characteristic corporate governance system that organically integrates dangjian, asset supervision, and listing regulations, and coordinates domestic governance and overseas management and control. Four, technological development and innovation. Cultivate scientific R&D innovation platforms, breakthrough key technologies that restrict industrial development, and promote transformation and application of scientific and technological achievements. Five, open-minded, inclusive, and tolerant. We will practice the concept of shared development and unswervingly create value for shareholders, customers, employees, and other stakeholders. Focusing on the above goals, we will concentrate on our superior resources to accelerate construction of the Shaanxi and Mongolia regions as the breakthrough, focus on regional optimization and industrial upgrading, coordinate allocation of various resource elements, accelerate release of incremental potential and comprehensively drive rapid improvement of the group scale efficiency and competitive strength steadily. One, strengthen core businesses, speed up growth of new businesses. We will give full play to the advantages of the two core industries of mining and high-end chemical new materials, and focus on the three main tasks of achieving production and efficiency, increasing revenue and reducing costs, and building key projects. We will deeply release resource advantages, strive to improve quality and efficiency, and comprehensively enhancing development potential. We will carry out efforts to achieve production and efficiency. Shaanxi Mongolian Base optimizes production organization and work service of a number of mines, design and coal mining technology. Commercial coal production reaches more than 39 million tons. Australian base optimized production organization and focus on increasing production. Increased commercial coal production to 40 million-44 million tons. Shandong base mines carefully and promotes backfill mining, and output of commercial coal stable at around 37 million tons. Efforts were made to promote 1,000-meter deep well mining pilot project in the Luxi mining area to create conditions for effective release of high-quality coking coal resources. Xinjiang base organized production lean and efficiently, with commercial coal output reaching 19 million tons. We will carry out efforts to increase revenue and reduce costs. We will deepen cost reduction and expense control, optimize production process, reduce product unit consumption, and strive to reduce by more than 5%, deepen management of existing assets and reduce material procurement and equipment operating costs, strengthen rigid budget control and reduce controllable expenses by more than 10%. We will continue to optimize debt structure and reduce capital costs, reduce interest-bearing liabilities by CNY 10 billion and interest expenses by CNY 500 million. We will optimize marketing strategy, strengthen market analysis and judgment, expand sales channels, and deeply explore regional markets with high value, large demand, and excellent logistics. Implement the clean coal plus customization strategy to increase output of high value-added products and ensure that clean coal sales account for more than 50%. Improve material supply system, comprehensive use of centralized procurement, social savings, and other means to reduce inventory capital occupation by 10%, and reduce procurement costs by more than CNY 200 million. Improve asset quality. One enterprise, one policy formulates a plan to increase profits and improve quality of chemical units, strengthen chain extension, chain replenishment, and chain strengthening, vigorously promote technological transformation and upgrading and expand one core multiple line flexible production, optimize financial structure, improve operational quality and efficiency, and ensure chemical industry sector achieve better results. Deepen cost reduction and expense control, optimize the production process, reduce product unit consumption. We want to make sure that at the end of 2024 we will be able to spin off one of the mines. We will also start the Liusangedan Coal Mine, Galutu Coal Mine. In three to five years time, we will have a core engine. For high-end equipment manufacturing. Future Energy, 500,000 tons of HTFT, Xinjiang Zhundong, 800,000 tons of olefins, Rongxin Chemical, 800,000 tons of olefins. We can enjoy high-quality core resources to achieve transformation and also synergy in the industrial chain. We will also foster new businesses to add impetus to development. High-end equipment manufacturing. We will seize the opportunities in the new round of equipment replacement to enhance our market share to optimize and integrate equipment manufacturing business. We will construct a green and high-end smart industrial park with net zero carbon emissions. We will bring in high-quality enterprises to collaborate with. For the industrial park, the revenue should exceed CNY 1.3 billion. We will achieve international export. We will build up and make good use of the R&D platform in Europe and bring in outstanding technology to achieve industrial upgrades, smart logistics. In the Luxi Xinjiang area, we will integrate logistic resources in western Shandong and Xinjiang, cooperate with leading companies, and build an industrial siding of Shaanxi Inner Mongolia Railway. We will acquire logistics nodes and kick off construction of a railway that links Wushen Banner in Inner Mongolia, Yulin in Shaanxi, and Linxian in Shaanxi, and build the Tai'an Port and Sihekou Port. The port throughput can achieve 48 million tons. For new energy, we will make use of the industrial projects to obtain production quota through industry investment, undertake projects of floating PV, wind power, and onshore wind power, and active participation in the transmission of external electric power into Shandong. There will be some wind power projects as well. In this way, there will be wind, PV, wind power, and onshore wind power together. Then we can enhance our overall competency and achieve optimization and upgrading. Focus on value creation, increase shareholder return. In relation to high quality assets, we will try to acquire high quality assets at home and abroad so that we can build a very leading company. We pay attention to high quality possible M&A targets. Then in regions, we will acquire high quality assets from our controlling shareholder as well, so as to expand our room for development to increase our competitiveness. We want to enhance market Cap management. We want to also strengthen corporate governance, value sharing and efficient communication. These are the three main supports. We will stay firmly with our core business, and then we will achieve capital operations, brand enhancement, international collaboration, and tool utilization. This is a very unique 135 market Cap management of Yankuang. Then we want to enhance our brand influence. We will consistently carry out ESG initiatives. We will also discharge our social responsibility and do a good job in environment and ecology protection. We will accelerate the development of a world-class corporate brand. Facing the complex economic situation, we will seize the favorable opportunity when the country intensively releases policy dividends, give full play to the management advantages accumulated over the years, utilize solid foundation laid by industrial development, and use our extraordinary ability to control and grasp market to ensure high quality development. Quality development is more solid and momentum is now stronger. Hundreds of boats compete with each other, and those who move forward with determination will be the first. In 2024, we will follow the trend of global energy change, deepen internal development, expand externally, look globally and fight for the world. We will unswervingly promote second entrepreneurship of external development and accelerate construction of a green, low carbon, intrinsically safe, standardized, transparent, and value sharing enterprise, a world-class energy company. We have the confidence and ability to promote a comprehensive improvement in scale, economic efficiency and development quality, and create more value and returns for shareholders and stakeholders with excellent results. Thank you all.