Earnings Call: H2 2024

Mar 29, 2025

Summary

2024 coal output rose 7.9% and chemical output hit a record, while revenue fell 6.2% and net income fell 26.9%. 2025 plans target higher coal volumes, lower costs, and major capacity and chemical-project expansion.

Ladies and gentlemen, good morning. On behalf of Yankuang Energy, I would like to extend a warm welcome to all investors and friends attending this meeting. I would like to express my heartfelt gratitude for the care, understanding, and support you have long given to the group. In recent years, the world's century-long changes have accelerated. The macro economy has been complicated and volatile, and the energy industry has accelerated its transformation. In the face of many pressure and challenges, Yankuang Energy has firmly believed in development, maintained our strategic strength, decisively launched the second venture of external developments, and resolved to strengthen our five industry segments, continuously rewarded our shareholders, and strengthened the foundation and guarantee of sustainable development. In 2024, the coal market was in a downward spiral, and our group focused on the three objectives of achieving production efficiency, opening up new sources of income, and cutting down on expenses and project construction, and pushed forward the eight new projects at full speed to forge a new engine of efficiency and comprehensively deepened lean management and explored new ways of tapping potentials and increasing efficiency. A series of targeted initiatives to synergize production and operation to achieve increase in quantity and quality, and overall performance steadily ranked first in the industry. The following is a four-part report on our group. The first part is a review of our operating results. In 2024, for coal production, it is 142 million tons, a year-on-year increase of 10.39 million tons or 7.9%, exceeding the annual production plan. Two, chemical production of 8.702 million tons, a year-on-year increase of 115,000 tons or 1.3%, hitting the best level in history. Sales revenue, CNY 124.53 billion, a year-on-year decrease of CNY 8.21 billion or 6.2%. Four, net income, CNY 14.06 billion, a year-on-year decrease of CNY 5.17 billion or 26.9%. Five, total assets, CNY 356.35 billion. Shareholders' equity, CNY 58.61 billion. Return on net assets, 23.98%. Scale efficiency and asset quality continued to improve. Six, annual dividend of CNY 0.77 per share, tax included. For our core industry, mining industry, advantageous production capacity to accelerate release. Shaanxi-Mongolia Base commercial coal or saleable coal production, 43.12 million tons, up 666 tons. Strict volume management income profits have become our group's contribution to our core growth pole. Breakthrough progress was made in the strategy of focusing on Shaanxi and Mongolia. The coal mines of Zhuanlongwan and Shilawusu successively cracked the policy constraints of double-face production. Yingpanhao Coal Mine built the first ultra-long comprehensively released phase in China and abroad under the complicated conditions of large burial depth of more than 700 meters. Australian Base commercial or saleable coal production, 42.29 million tons, up 3.43 million tons year-on-year, with production and operation core competitiveness and future development potential fully enhanced and continued to rank as the largest pure-play coal producer in Australia. Shandong Wanfu Coal Mine was successfully completed and put into operation with annual production capacity of 1.8 million tons of high-quality coking coal. The first phase of the 10-million-ton Wucaiwan Number Four open pit mine in Xinjiang is under construction and will be stripped of coal in the third quarter of 2025. Second phase of the mine, which will increase production capacity to 23 million tons per annum, has been approved. In Inner Mongolia, the planning of Huolinhe No. 1 Coal Mine was adjusted to 7 million tons per year. The planning of Liusangedan Coal Mine was adjusted to 10 million tons per year, and the mining license was obtained. The exploration of Galutu Coal Mine was completed and the land use of Caosiyao Molybdenum Mine was completed and other preliminary approvals were granted. Science and technology innovation empowers upgrading. 21 pairs of mines in the country have reached national standard of intelligent mining and proportion of intelligent mining has reached 94%. The project of deep coal, digital, intelligent, Jiafa sweet mining, complete sets of technology and engineering application was awarded National Scientific and Technological Progress First Prize. The thin coal seam digital intelligent unmanned control technology and equipment industry leader successfully held the National Coal Mine Thin Coal Seam Intelligent Mining Experience Exchange site. Jinjitan and other coal mines received special award of the National Coal Mining Workers Working Face Innovation Competition. Our group has successfully developed international leading mine output model to enhance safety, production efficiency, resource optimization intelligence. Two, high-end new chemical materials, improving quality and profitability. One, effectiveness of lean management and control is outstanding. Strong implementation of lean management, subordinate chemical production units all reach full production capacity, year on year profit of RMB 1.5 billion. Two, industry chain extension and expansion. Construction of two 800,000 ton olefin projects of Inner Mongolia, Rongxin Chemical and Xinjiang Nenghua started. Shaanxi Future Energy made a breakthrough in the formalities of 500,000 ton high temperature Fischer-Tropsch synthesis project. The 60,000 ton melamine project of Xinjiang Coal Chemical Industry was completed and put into operation. The world's first 3,000 ton multi-nozzle opposing type pulverized coal pressurized gasification furnace in the word of Lunan Chemical Industry operates stably. A 600,000 ton formaldehyde project was accelerated. High-end equipment manufacturing, upgrading, moving towards internationalization. The intelligent manufacturing park has been built to a high standard, realizing objectives of green, high-end, intelligent, and zero carbon. The first six JVs have been put into full operation, with revenue exceeding RMB 1 billion. Products such as intelligent electrohydraulic control system for hydraulics support have reached international advanced level, and the world's largest 12,000 ton crusher has been researched and produced. Two, successfully expanding international market. The company acquired and operated Germany's SMT Scharf company, accelerated the integration of technology, market, and industrial chain resources, and sets up a production and R&D platform and talent attraction base in the global high-end equipment manufacturing center. Sets of high-end hydraulic supports were exported to Australia, realizing new breakthrough in the international export of mining equipment. We took part in the exhibition, U.S. MINExpo International, and lean manufacturing quality was recognized internationally. Four, intelligent logistics. Five-in-one capacity leap, railway, highway, port, and navigation park platform. Five-in-one industrial structure is further optimized. We gradually formed a smart and efficient logistics ecosystem linking shipper site, capacity site, and client site, and we accelerated the building of an international bulk commodity supply chain integrated service provider with competitiveness. We'll gradually form an intelligent and efficient logistics ecosystems linking the cargo owner site, transport site, and client site, and accelerate establishment of an international bulk commodity supply chain service provider with core competitiveness. We successfully merged and acquired the head logistics enterprise park, realizing integration of physical logistics and digital intelligence platform. Completed second phase of Tai'an Port Logistics Park, forming a static coal storage capacity of 2 million tons and cargo throughput capacity of 60 million tons. Integration of assets of Luxi Railway was completed efficiently, reaching 4,000 kilometers in capacity. Five, new energy. According to local conditions, steadily expanded coordinate promotion of target acquisition and project construction, and orderly promoted new energy projects such as JV in Inner Mongolia and water surface PV project in collapsed area of Shandong Province. Actively carried out demonstration of the project for the channel of external power into Lu to promote optimization and upgrading. Third, lean management broaden quality and profit space, strengthen management, reduce cost, and increase efficiency. We continuously carried out two increases, three decreases, and four enhancement activities. The strict implementation of the eight hard measures to reduce cost and increase efficiency, and achieved cost of sales of tons of coal, down 5.4% of control target. Strict control of production cost. We continue to optimize production succession, mining process, and labor organization. Strengthen control of key costs such as material costs, water and electricity costs, and reduce level of unit consumption of products. We control period costs, rigidly reduce management sales and financial expenses, strictly prohibit extra budgetary expenditures, and reduce non-essential expenditure. We focused on six management of human resources. We have promoted institutional reform, compressed management level, optimized allocation of human resources. Third, revitalize the stock of materials. We will increase clearing of warehouses, repairing and utilizing waste, strengthen the inventory of equipment and materials, and dispose of inefficient and ineffective assets. In FY 2024, the group's cost of sales of self-produced coal amounted to CNY 345.4 per ton, down 5.4% year-on-year. Unit cost of sales of methanol and major chemical amounted to CNY 1,454 per ton, year-on-year decrease of 14.6%, while unit cost of sales of acetic acid amounted to CNY 2,147 per ton, down 6.8% year-on-year. We optimized debts and reduced fees and burdens. Make scientific use of government policies to promote economic growth and obtain low cost development funds through multiple channels. Average financing interest rate was reduced to a historical low of 2.98%. This is 0.6 percentage point lower than the previous year. CNY 4.5 billion was raised from issuance of additional H shares. Comprehensive measures saved about CNY 830 million in finance costs, and gearing ratio was reduced from 66.7% to 63%. Three, adjustment of structure and creation of efficiency through marketing. We flexibly implemented the sales strategy of withholding and deferred reduction and premium for refined coal. We dynamically optimized product structure, customer structure, sales channels, and market layout, and we did in-depth exploration of regional markets with high value, high demand, and excellent logistics. For 2024, average price of our group's self-produced coal was CNY 656.2 per ton. Average price of methanol, CNY 1,819 per ton, down 0.6% year-on-year. Average price of acetic acid, CNY 2,594 per ton, down 6.9% year-on-year. Fourth, build a win-win situation and set up a model of value creation. There were two dividends, and we are sincere. We adhere to the concept of shareholders first value sharing. We increase frequency of dividend distribution. Following the interim dividend of RMB 0.23 per share, the proposed final dividend of RMB 0.54 per share, totaling RMB 7.73 billion in dividend distribution, accounting for 60% of net income after deducting the legal reserve. We firmly believe in growth with two increase in shareholding. Controlling shareholder invested RMB 300 million to increase shareholding, and the company senior management collectively increased their shareholdings to convey the company's value through practical actions and to achieve common growth through joint construction and sharing. ESG promotion work, we demonstrated commitment. We implemented ESG strategy of green, low carbon compliance and transparent and sustainable development. We adhere to green development and strengthen production safety and security and actively fulfill social responsibility. Our comprehensive energy consumption of industrial output value has reached advanced level in the industry. In terms of our product, MSCI, we are awarded the highest grade of ESG rating of Chinese coal companies by MSCI. Next, we will report on the second part, situation and market analysis. In 2025, the internal and external environment will further test our ability to analyze and judge, make decisions, and be flexible and adaptive. One, macroeconomic performance is stable with both opportunities and challenges. The international economic environment has become more complicated and severe, with protectionism hindering international economic cycle. Geopolitical tension remains high, and the momentum of world economic growth is insufficient. IMF forecasts that global economic growth will be around 3% in 2025, the same as in 2024. Major countries in the world are re-examining energy security and international energy cooperation, which will reshape the international energy landscape. China economy will continue to maintain the basic trend of long-term improvement, and its development resilience will continue to increase. In 2025, the Chinese government will insist on seeking progress and stability and promoting stability through progress, implement more proactive macro policies and strengthen counter-cyclical adjustments and introduce special incremental policies to boost consumption and improve efficiency of investment so as to expand domestic demand on all fronts and push the economy forward in a sustained upturn. GDP growth target is clearly set at around 5%. Two, supply of major products in the market is loose and the price pivot is limited to move downward. Coal market. In 2024, supply and demand relationship between domestic and overseas coal markets was loose and the price of coal oscillated downwards. Despite multiple challenges of renewable energy and environmental protection policies, coal, as one of the world's most important sources of energy, continued to play a key role in guaranteeing bottom line. The IEA forecasts that global coal demand will continue to grow until 2027. In 2025, the coal market is expected to continue the pattern of loose supply. Price pivots will move downward in a limited way. In the second half of the year, supply-demand relationship will improve. Average annual price will still be in the mid to long cycle of better profitability. In 2025, domestic coal supply increment is limited, and imported coal will fall from the high level. As the Chinese government's economic promotion policies take effect, coal consumption will maintain a high level of rigid demand. Kinetic coal consumption will keep growing, chemical industry coal consumption will stabilize at a high level, and coal consumption in iron and steel and building material industries will remain basically flat or decline slightly. Chemical markets. The price pivot is expected to be generally stable in 2025, with strong support for high-end chemicals. Growth rate of basic chemicals such as methanol and acetic acid slows down, continuing the pattern of loose supply and demand. Demand for fine chemicals such as polyformaldehyde and caprolactam will be driven by the industry, maintaining a growth rate and competitive advantages, and price will remain at medium to high level. Next, I will report to you on the third part, the 2025 business objectives. One, production volume plan. Saleable coal, 155 million to 160 million tons, striving to increase more than 13 million tons year-on-year. Chemicals, 8.6 million to 9 million tons, generally stable. Two, CapEx plan. CapEx is planned to be RMB 19.5 billion, focusing on capacity expansion, chain extension, equipment upgrading, and other incremental efficiency projects. Among them, RMB 9.74 billion will be spent on maintaining simple reproduction, RMB 3.32 billion on mine infrastructure projects, RMB 3.19 billion on high-end new chemical materials projects. For cost control, we strive to reduce cost of sales of tons of coal by 3%, reduce cost of sales of methanol by RMB 60 per ton, and cost of sales of acetic acid will not increase. Four, asset liability ratio. There will be double control of scale and liabilities and asset liability ratio, and we will make every effort to reduce leverage and liabilities under the condition of meeting expenditure for production and operation, cash dividend, investment, and M&A. After deducting the impact of non-operating investment, we strive to control gearing ratio below 60%. Next, part four, business initiatives for 2025. Investors, old and new friends, looking back at the development history of Yankuang Energy in the past 30 years, we have crossed many energy market cycles. In every market downturn, we have always been able to advance against the trend and turn the market crisis into an opportunity for self-improvement and cross-development. Now, in face of the severe situation that coal prices have been declining for three consecutive years, the core competitiveness we have built up and the rich experience we have accumulated have given us enough confidence to take the challenge with ease. We are not only confident to meet and overcome the challenge, but also more confident to strengthen the foundation and accumulate potential energy for sustainable development of our company. We will release superior production capacity and control corporate costs. These are the core keys to cope with decline of coal price, to ensure profitability and to expand our comparative advantages. In 2025, we will emphasize both change of stock and use of incremental or rise of incremental capacity. We will work hard on the ground with a pragmatic approach to management and do our utmost to achieve the goal of sustainable development. We will strive for efficiency, firmly ensure safety, increase production, reduce costs, and grasp projects, make the industry stronger, quality better and more efficient, and ensure that we can win the first opportunity and take initiative in the complicated situation. We will increase quantity and quality, key breakthroughs and do fine and strong core industries. We will focus on core industries of mining and high-end new chemical materials, optimize the layout, increase quantity, and expand efficiency to ensure the development of better quality and efficiency. In the mining industry, we will attack the whole region. We will forge a strong industrial engine, adhere to the planning goal of 300 million tons of raw coal production, and accelerate building of three 100 million ton coal bases in Shaanxi and Mongolia, Xinjiang and Australia. We will maintain a stable, efficient base in Shandong and support the transformation and development. First, we will optimize regional layouts and unleash potential of high quality. in 2025, we will place top priority in volume increase and maximize production. The Shandong base will have fine mining, balanced and stable production, and sellable coal output will be stabilized at 37 to 40 million tons. We have efficiently organized the Wanfu Coal Mine to reach production and push forward the pilot project of 1,000-meter deep well resource mining in the Luxi mining area, fully release the potential of high-quality coking coal to generate efficiency. The Shaanxi and Mongolia base will gather advantages, reach production capacity, and achieve efficiency, and sellable coal production will reach 44 to 46 million tons. The Xinjiang base will accelerate and release production capacity with output of sellable coal reaching over 30 million tons. We will ensure completion and commissioning of the first phase of the Wucaiwan No. 4 open pit mine project. The Australian base will improve production organization and management, and sellable coal output will reach 40 to 44 million tons. We will accumulate development momentum with full speed and high efficiency to promote construction of incremental projects. Construction of Huolinhe No. 1 Coal Mine in 2025. Within three years, construction of Liusangedan Coal Mine, Otog coal mine and Galutu Coal Mine will start successfully. After completion of the three mines, the coal production capacity will increase by more than 25 million tons per year. We strive to start the construction of Caosiyao Molybdenum Mine by the end of 2025 and open up a source of multi-mining efficiency growth. Third, acquiring external resources and expanding industrial map. We firmly adhere to the concept of resources are king of energy enterprises. We will accelerate implementation of quality asset injection of controlling shareholders by region and batch, integrate into development plan of national energy strategic bases in Shanxi, Mengguan and Xinjiang, and actively acquiring quality coal resources of the coal production areas. We will focus on M&A opportunities of coking coal and non-ferrous metal assets. We will focus on international market and M&A opportunities. High-end chemical and new material industry will extend the chain and promote high-end development of cluster, vigorously implement technological upgrades and reconstruction of production equipment, pay strict attention to the management of waste reduction and stoppage, and ensure safe, stable, long for an excellent operation. We will increase proportion of high value-added products, strive to exceed 9 million tons of chemical product in the year, and ensure total profit will increase by more than 50% year on year, accelerate promotion of 800,000 ton olefin project in Xinjiang, Zhundong, give full play to the advantages of coal conversion, enhance synergistic effect of coal and chemical products, and expand the value-added space, efficiently construct 800,000 ton olefin project in Rongxin Chemical in Inner Mongolia to promote extension of basic chemicals to the high end of the value chain, promote 500,000 ton high temperature Fischer-Tropsch project of Shaanxi Future Energy. We will strengthen guarantee of resource elements and push forward the integration project of low carbon and high efficiency new energy materials of Lunan Chemical in a comprehensive manner. The investment in projects in Yulin, Inner Mongolia and Xinjiang will drive acquisition of high-quality coal and new energy indices. Second, we will seize the track and collaborate and support accelerate growth of emerging industries. We will actively integrate into new industry formats, accelerate consolidation of new track, promote scale, increment developments, growth rates, and operation efficiency of emerging industries. High-end equipment manufacturing industry will seize the strategic opportunity of major technological transformation and upgrading of manufacturing industry and large-scale equipment renewal project implemented by the state, and anchor the strategic goal of 3812, integrate equipment manufacturing resources, and create the number of medium and high-end products with international competitiveness. High-end products with international competitiveness. We will invest in construction of second phase of Luxi Manufacturing Park, focus on introduction of Luxi Data Center, German CFH wind turbine manufacturing, high-end special cable manufacturing and other projects to enhance scale of high-end equipment, intelligent manufacturing, green power products, and to build a factory and zero carbon park, striving for the revenue of the park in 2025 to exceed 2 billion. Give full play to the German R&D platform and talent attraction base, promote transformation of monorail crane products, electrification and intelligence, accelerate expansion of Asian and European markets and enhance international competitiveness of products. Intelligent logistics will actively grasp the national reduce social logistics cost and other policy opportunities to accelerate creation of new economic growth poles, benefits, and profit sources. Operating income to reach 18 billion, total profit exceed 200 million. Focus on West Coast East, North Coast South transportation key logistics node. We will build Ximeng, Gangchang Tang, New Mengding Mining Area Railroad. Speed up the construction of Xinjiang, Zhundong mining area and railroad. Actively participate in the Wuyulin Railway construction project and effectively enhance capacity of Shaanxi, Mongolia, Xinjiang and other regions. Strengthen and optimize Tai'an port logistics parks and Jining Sihekou Port and strive to exceed 10 million tons of port capacity. We will give full play to advantages of logistics technology platform, create new logistics business model of physical logistics plus digital intelligence platform with high starting point and high quality, and expand import and export business at the right time. New energy industry will focus on the landing of large projects and acquisition of large targets. We will continue to expand regional distribution of advantageous resources in Inner Mongolia and Xinjiang. Relying on existing industries and new projects, we will actively participate in construction of power transmission channels, such as power from outside China to Lu and power from Xinjiang to outside China. Lean management, digging deep into internal potential and making every effort to realize cost reduction and efficiency enhancement. We will implement lean management and value creation actions, deepen management efficiency and asset quality enhancement, and rigidly implement 10 enhancements and 10 efficiency enhancements on the basis of continuing to implement the eight hard measures for cost reduction and efficiency enhancement. On the basis of continuing to implement cost reduction measures, we will rigidly implement the 10 efficiency enhancement measures. We will optimize process flow and production organization to improve production efficiency, increase control of whole process of production operations, analyze unit consumption of production units, and focus on reducing cost and materials, repair and equipment leasing. We'll deepen management cost reduction, give full play to the rigid control function of financial sharing platform, formulate cost measure by industry and unit, and strictly prohibit extra budgetary expenditures, striving to reduce controllable costs by 5%. We'll continue to deepen six management rules and optimize allocation of human resources. We'll strengthen fund management and strengthen centralized management of funds and improve efficiency of fund utilization. Make good use of national special loans, preferential interest rates and other funding policies, and take various measures to obtain low cost funds, expand financing channels, strengthen low interest replacement of high interest rates, and strive to reduce comprehensive financing costs by 6% and reduce finance costs by RMB 300 million. Fourth, optimize logistics management. We'll give full play to advantages of multimodal logistics and coordination between logistics and sales, regularly analyze benefits of railway, steam, and water transport, optimize channels, transport, storage, and settlement methods, and reduce sales costs. Fifth, revitalize stock assets. We'll increase liquidation of warehouses and libraries, repair old assets, and revitalize idle assets, strengthen integrated management of equipment, and ensure that the stock of materials will be reduced by 10%. Six, strict control of procurement costs. We have controlled source of procurement expenditure, increased centralized procurement and unified negotiation and subcontracting and price comparison procurement, and ensure that procurement cost reduction is more than RMB 220 million. Fourth, intelligent marketing and fully promote revenue generation. Scientific research and evaluation of the market. We will do precise planning of marketing strategies and on the basis of continuing to carry out the four optimizations, we rigidly implement the three grasp and two guarantees. We'll go out to increase revenue and create efficiency, grasp long-term contracts. We have established an improved dynamic tracking mechanism, strengthened customer communication and coordination, and will ensure contract performance and realization, strategically increase proportion of long-term contract sales, and stabilize sales fundamentals. We'll maintain key customers and focus on strategic and key customers with strong long-term cooperation and adhesion. We will carry out customized service to ensure more than 85% of customers are directly supplied. We'll grasp new market development, expand potential high-value market users, intervene ahead of time, and actively strive for customers of large-scale thermal power projects under construction. We'll ensure coal quality and cash flow. We have strengthened coal quality management with all staff in all aspects and in all processes, so as to polish the brand of Yankuang Coal with excellent quality and corporate credit, and to win the trust of customers. We'll adhere to the principle of payment before delivery, strictly control increase of receivables and inventory, and create more profitable income and cash flow profit. Integrate, adjust, and optimize. We'll continue to enhance sustainable development capacity, integrate fully into national energy strategy, fully integrate enterprise resources and elements, and plan for the long term in line with the trend, instead of focusing on temporary gains and losses. Based on our existing advantages, we'll continue to adjust our industry layout, firmly optimize our industrial structure, and accelerate product upgrading. We'll consolidate and develop the core area of energy supply for the triple term for energy supply. We'll continue to enhance our location advantages, comply with national energy strategy base, and gather resources in Shanxi and Inner Mongolia, where the return on investment is high. We'll consolidate and expand our industrial map in overseas core resource areas such as Australia, so as to realize sustainable development and ensure long-term investment returns. We will firmly grasp the power of change in the clean conversion of coal. We'll strengthen our advantages in clean and efficient utilization of coal, combine our Group's high-quality coal with our resource endowment, and transform wherever appropriate to give full play to the Group's industrial, technological, and management advantages in the field of high-end chemicals, and to continue to enhance coal conversion capacity and industrial synergy. We will adopt various cooperation methods such as investment and reconstruction in order to seize the first opportunity in the corridor change from coal transmission to power transmission. We'll accelerate the driving force of product upgrading in the silver manufacturing industry, strengthen the complementary advantages of coal, molybdenum, potash, and other mines, promote value of resources to the low-carbon and high-value-added fields, and forge an enhanced core capacity of multi-mineral, full-chain, and multi-dimensional energy solutions. Investors and friends, courage is only revealed when the sea flows. In face of wind and waves, our Group will ride on the wave of energy change and transformation, and we know how to carry heavy loads and rise to the challenge. We'll dig out potentials internally with the determination of turning the blade inward, and expanding externally with the spirit of opening up new horizon and expanding territories. To strengthen the traditional industries, to accelerate conversion of kinetic energy, and we will activate new race tracks to develop new quality productivity, to push the layout structure, operation quality and efficiency, and international influence. We will strengthen traditional industries to accelerate conversion, and with the will to win and pragmatic actions, we'll open a new situation in the midst of changes and build a high ground in the midst of storms and waves, so as to make the development more stable, our engine stronger, and the space broader, to demonstrate our corporate responsibility with historically proven performance and to create higher value and more return for our shareholders and stakeholders with outstanding achievements. Thank you.