Earnings Call: H1 2025

Sep 1, 2025

Summary

H1 output rose, but lower coal prices reduced revenue and attributable profit. Cost controls, the Xibei Mining acquisition and a planned RMB 1.8 billion dividend underpin growth plans; performance is expected to improve sequentially in H2.

Now we will pass the time to our chairman to start today's presentation. 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 our sincere gratitude for your longstanding care and support for our group. This year, in the face of complex and volatile macroeconomic conditions, accelerated transformation in the energy sector, and the persistently declining coal markets, Yankuang Energy tackled challenges head-on with targeted measures. We implemented multiple initiatives to boost production, control costs, expand markets, and strengthen management. A series of foundational long-term targeted actions worked in concert, resulting in increasingly stable production and operations for the group. Performance met expectations, accumulating momentum and laying a solid foundation for long-term development. Now I will report on the group's operations in three parts. Part one, operation review of first half 2025. Results overview. Salable coal production reached 73.6 million tons, an increase of 4.52 million or 6.5% year-on-year. Coal chemicals output totaled 4.74 million tons, up 560,000 tons or 13.5% year-on-year. Sales revenue CNY 53.97 billion, a decrease of CNY 8.19 billion or 13.2% year-on-year. Net profit attributable to shareholders, CNY 4.73 billion, a decrease of CNY 2.99 billion. Total assets CNY 373.4 billion. Net assets CNY 135.3 billion. Return on equity 8%. Actively rewarding investors through an interim dividend of RMB 0.18 per share and a planned share buyback program of RMB 200 million to RMB 500 million. Two, five major industries advanced in stages with synergistic efforts, continuously strengthened balancing immediate and long-term priorities will fortify core industries, expand emerging sectors, and refine a modern industrial system aligned with new development stage. One, mining. Production expansion and volume growth with strong momentum. Unwaveringly anchored to planning targets, we will optimize existing capacity, scale up new projects, and enhance green transformation momentum, ensuring steady growth in core industries. The group's operational under construction and planned mines have reached an annual production capacity of 320 million tons. The target of 300 million tons of raw coal production will be achieved as scheduled before 2030. One, fully releasing advantageous production capacity, stabilizing the foundation for high-quality development. We efficiently organize production, achieving a record high output of commercial or salable coal. Shaanxi-Inner Mongolia base focused on advancing the three major campaigns, achieving full production capacity and efficiency across mines. Salable coal outputs reached 23.55 million tons, an increase of 2.15 million or 10% year-on-year, including a 1.2 million ton increase at Shilawusu Mine and 800,000 ton increase in Yingpanhao Mine. This base contributes to 52% of profits becoming core growth engine for the group's capacity expansion and profit generation. Australian-based meticulously organized production and scientifically address impact of extreme weather. Despite closing one mine with an annual capacity of 600,000 tons, it achieved a commercial coal output of 21.78 million tons, an increase of 2.11 million tons. This output release reached the highest level in the past five years. Strategic acquisition successfully done. The successful acquisition of Xibei Mining added 6.4 billion tons of resources, 3.7 billion tons of recoverable reserves, and an approved production capacity of 61 million tons per year. This includes 10 operational mines with an improved capacity of 36 million tons per year, and two newly constructed mines, plus two planned mines with a project capacity of 25 million tons per year. This further enhances the group's resource reserves and production scale, significantly improving sustainable development capacities. Three key projects are advancing in an orderly manner, concentrating superior resources. We are vigorously promoting the eight major projects. Breakthrough progress in key projects provides a solid foundation for strengthening and optimizing mining business and continuously enhancing profitability. In Inner Mongolia, Liusangedan Mine successfully obtained a mining license for 10 million tons per year. Planned production capacity of Huolinhe No. 1 Mine and Dalou 2 Mine was increased to 7 million tons per year and 8 million tons per year respectively, with both mines capable of producing 10 million tons per year. Caosiyao Molybdenum Mine obtained project approval. Xinjiang Phase I, 10 million tons per year project at Wucaiwan No. 4 Open-pit Mine commenced coal exposure and production contribution. Phase II project with capacity increase to 23 million tons per year, completed approval for mining area planning adjustments. Four, empowering efficiency through technological innovation. The innovative compact, dense backfilling progressive mechanized mining method was incorporated into the 2025 edition of the Coal Mine Safety Regulations, enabling efficient utilization of overburdened resources and pioneering a new green development path that achieves both ecological and economic benefits. Successfully hosted the National Coal Mine Rockburst Prevention Experience Exchange Conference, contributing our wisdom to industry technological advancement. High quality preparations were made for hosting 13th National Mine Rescue Skills Competition, driving continuous improvement in mine rescue capabilities. Two, high-end chemical new materials industry, stabilizing production and boosting efficiency, driving industrial upgrading. Synergistic effects accelerate, leveraging the advantages of coal chemical integration and regional integration. Chemical sector achieved stable and high volume production with simultaneous growth in both output and efficiency. It contributed CNY 1.1 billion in net profits attributable to shareholders, marking a year-on-year increase of CNY 920 million. Among these, Rongxin Chemical and Yulin Energy and Chemical saw a combined profit increase of CNY 760 million year-on-year, while Future Energy's coal-to-oil profit contributed an additional CNY 390 million in profit. Lu'nan Chemicals' 3,000-tonne pressurized coal gasification furnace maintains continuous stable operation. Two, deepening industrial chain integration and extensive Rongxin Chemical's 800,000 ton olefin project commenced full scale construction. Lunan Chemical's 60,000 ton polyformaldehyde project advanced steadily. Xinjiang Energy Chemical's 800,000 ton olefin project progressed in orderly manner, and procedures for Future Energy's 500,000 ton high temperature Fischer-Tropsch project accelerated. High-end equipment manufacturing industry, targeting high-end markets, expanding globally. Smart manufacturing park sets new benchmarks. Revenue exceeded CNY 1 billion in the first half of the year among its achievements. Fully automated roller project boasts industry leading automation levels in China, with annual production capacity of 1.5 million units. High performance conveyor belts project established the industry's first lighthouse factory. The independently developed world's largest 12,000 ton crusher successfully rolled off the production line. Two, achieve new breakthroughs in international development. Full-mechanized caving hydraulic support products were successfully deployed in Australia, marking significant overseas market breakthrough. Strengthen and optimize European equipment manufacturing R&D platform, efficiently integrating the technology, market, and industrial chain resources of Germany's Schwarze Group. Strategically acquired Germany's CFH Group to establish international leading equipment systems for auxiliary transportation, air filtration, and dust removal. Leveraging technological R&D and premium brand strengths, the European platform focuses on precision manufacturing of core components. By coupling with China's robust equipment manufacturing capabilities, it effectively reduces full industry chain costs, deeply penetrates and integrates into international markets like Europe and Asia Pacific, and comprehensively enhances economic efficiency and global competitiveness. Four, smart logistics industry. Five-in-one integration and interconnectivity focusing on national strategy of transporting coal from west to east and north to south. We accelerated construction of multimodal transport hubs and corridors by integrating regional logistics resources in Shandong and Xinjiang. We cultivated and strengthened a five-in-one industrial system encompassing railways, highways, ports, and shipping, and industrial parks and platforms. The group self-operated an equity-participated railway mileage exceeded 4,000 kilometers, with 12 integrated railroad water logistics parks established. In the first half, logistics cargo volume surged to 140 million tons, a year-on-year increase of 100 million tons. High standard Tai'an port for coal transshipment was completed and put into operation, with 10,000 ton mega trains operating regularly. Daily collection and distribution capacity exceeded 100,000 tons, ranking first among inland river ports in Shandong Province in terms of throughput. Wubo Technology deeply integrated physical logistics with platform operations, expanding new models for bulk commodity supply chains and achieving transport volume of 110 million tons. Five, new energy industry. Model innovation and breakthrough exploration, seizing strategic opportunity presented by National Zero-Carbon Industrial Park Initiative. We implemented an industry plus new energy co-development model. The West Shandong Smart Manufacturing Park achieved direct connection to green power, while Yankuang Tai'an Port Zero-Carbon Industry Park was constructed to high standards, achieving full coverage of clean energy and dynamic net zero carbon emissions. Coordinate the advancement of indicator acquisition and project construction. Systematically promoting 700 megawatt green electricity hydrogen production project at Rongxin Chemical and the 260 megawatt green electricity hydrogen production project at Xinjiang Energy Chemical. Lean management drives cost reduction and efficiency gains, significantly enhancing development resilience. By persisting tapping internal potential to strengthen management and expanding internal markets to boost profitability, the group thoroughly implemented lean control measures such as strict practicing frugality and rigorously controlling costs, and 10 enhancements, 10 efficiency gains, and 10 cost saving initiatives. These resulted in cost reductions and efficiency gains of about CNY 1.7 billion in the first half. All-out efforts to control costs and reduce expenses. The group spared no effort in strictly controlling all expenses, with all leading products exceeding cost control targets. Specifically, sales cost per ton of coal, CNY 320 per ton, down 11.8% year-on-year. Unit sales cost of methanol, CNY 1,239 per ton, down 19.2% year-on-year. Unit sales cost of acetic acid, CNY 1,981 per ton, down 15.4% year-on-year. We intensify production control by optimizing production organization and workflow. We focus on managing material costs and utilities, resulting in a 2.3% year-on-year decrease. Second, we implemented strict cost reductions. By rigorously controlling management and sales expenses, we saved CNY 250 million in controlling costs. We deepened six-point management system, further reduced labor costs by CNY 250 million. Third, we optimized debt structure. Through low interest refinancing of high interest debt and innovative financing tools, we lowered average financing rate to 2.61%. Fourth, efficiently revitalizing assets, intensifying inventory clearance and warehouse optimization, coordinating equipment management, and revitalizing idle assets worth CNY 770 million. Fifth, optimizing material management, implementing strategies such as centralized bulk procurement, price controls, and third-party warehousing. Scientific implementation of marketing strategies, coal prices continued to decline in first half of the year, with comprehensive average price of self-produced coal falling to CNY 529 per ton, a year-on-year decrease of 20.7%. We precisely adjusted our customer structure by intensifying market development and client visits while vigorously enforcing long-term contracts. Direct supply to clients in Shaanxi and Inner Mongolia accounted for 91.5% of sales, maximizing market share and cash flow stability. Second, we deepened our strategy of winning through refined coal. Sales of high value-added products increased, with refined coal sales rising 9.9% year-on-year and accounting for 64% of provincial sales. Third, we expanded our diversified sales premium model. We leveraged the logistics advantage of two ports and one shipping route. We innovatively implemented port front sales. By fully tapping price potential and organizing competitive bidding for raw coal and niche coal varieties, we generated over CNY 30 million in premium profits. Fourth, we implemented a flexible coal blending model for profit generation. Leveraging the strategic location of logistics parks, we intensified efforts in coal blending for profit generation by adopting a customer-driven approach to customize production and sales. Four, leading ESG governance excellence and steady brand image enhancement. We implemented ESG strategic principles of green and low carbon, compliance and transparent, sustainable development. We integrated green development concepts throughout the entire production and operation process. Our comprehensive energy consumption per unit of industrial output, comprehensive energy consumption per unit of raw coal material and coal mining subsidence, land reclamation rate, all reach industry-leading levels. Actively fulfilled social responsibilities. We systematically built governance framework aligned with international standards. We maintain highest industry ratings in MSCI and Wind ESG assessments. For five consecutive years, we ranked first in the industry in the CDP Carbon Disclosure Project, recognized as one of the top 50 ESG best practices. The group has been steady in growth in public recognition and market trust. Next, I will present the second part, analysis of the major product market. Coal market in the first half, domestic raw coal production hits a record high, while coal imports remained elevated. New energy power generation performed well, but downstream demand from industries such as steel and building materials remained weak. Coal market overall exhibited a relaxed supply and demand balance, with prices facing downward pressure. Since July, on supply side, the state intensified inspections of overproduction and strengthened safety oversight. While production in major producing regions was constrained by rainfall, leading to monthly decline in domestic coal output, coal imports also fell year-on-year. On demand side, the peak summer period saw sustained high temperatures, with monthly social electricity consumption surpassing the trillion kilowatt hour mark for the first time. Coal consumption for chemical production continued to grow. Combined effects of these factors stabilized and lifted coal prices, shifting price center upward compared to the second quarter. China's economy demonstrates a steady progress, showcasing strong resilience and vitality. In the second half of the year, policies such as reserve requirement ratio and interest rate cuts, supporting new and emerging industries and key sectors, promoting urban renewal and high-quality development, bolstered effective investment and consumption, consolidating and expanding upward economic momentum. Total electricity consumption growth is projected to reach 6%-8%, with thermal power maintaining its robust underpinning role. The launch of national mega infrastructure projects will further stimulate economic development. In the second half, driven by both policy and market forces, coal supply is expected to become more standardized and orderly, while demand should gradually recover, leading to improved supply-demand balance. Anti-involution policies are being implemented, and mechanisms for stable production and supply are continuously improving. National authorities are conducting research on reforming and improving coal market price formation mechanism. Coal market price regulation will shift from suppressing increases to preventing declines and stabilizing the market. Further coal prices will tend toward rationality and stability, which is more conducive to healthy and stable development of the coal industry. In the international market, the International Energy Agency's mid-year updates on coal forecasts a slight increase in global coal demand by 2025. This outlook is influenced by factors including coal exports from major producing countries, energy policy shifts in emerging economies, and phased recovery from pandemic, alongside lingering geopolitical uncertainties. Overall, international coal price is expected to remain stable, though subject to short-term fluctuations. Chemical markets. In the first half, chemical industry overall saw strong supply and weak demand. However, demand for certain products like methanol remained robust, coupled with significant cost reductions, resulting in relatively favorable overall profitability. The second half and beyond are expected to maintain stable overall trends seen in the first half, with industry retaining favorable profit margins. On supply side, fixed asset investment growth in the chemical sector has declined for three consecutive years. Orderly exit of outdated domestic capacity and shutdowns of some overseas facilities have further alleviated overcapacity pressure. On demand side, improved manufacturing activity domestically and the enhanced effectiveness of national consumption, stimulating policies have slightly boosted demand in sectors like automobiles, home appliances, textiles or apparel, contributing to a marginal recovery in the chemical industry's business climate. Specifically, methanol supply tightened due to autumn maintenance, while downstream plants startups drove demand growth, stabilizing and potentially lifting the price center. Acetic acid faced price pressure as substantial new capacity came online amid limited downstream demand growth. Next, a report on part three, operational measures for the second half of the year. In the second half, the group will maintain unwavering strategic resolve, actively navigate complex circumstances, and leverage our robust capabilities to overcome challenges. We will fully advance optimization and upgrading of production organization, lean management and project construction. By driving progress on multiple fronts and collaborating to tackle key challenges, we'll consolidate and enhance our competitive edge. One, expanding capacity and enhancing quality, synergizing for efficiency. If cultivating new advantages for future growth, we'll fully tap into the efficiency-boosting potential of our five major industries, amplify industrial synergy and drive the group scale expansion, accelerated development and operational efficiency gains to build momentum for leapfrog growth. First, mining sector focuses on achieving scale breakthroughs, implement a strategy of stabilizing domestic operations, expanding provincially and optimizing overseas, ensuring 2025 commercial coal output increase of over 40 million tons to achieve a historic breakthrough exceeding 180 million tons. Shandong region will maintain precise mining practices, stable production and output levels between 38 to 40 million tons. Outside Shandong, we will tackle procedural hurdles to achieve full production capacity and efficiency. The Shaanxi-Inner Mongolia base will reach 44 to 46 million tons. Xinjiang base will exceed 25 million tons. Xibei Mining will add 30 million tons of capacity through consolidation. Overseas operations will optimize mine design to expand output and enhance efficiency, targeting 40 million-44 million tons. Second, chemical industry focused on upgrading and enhancing capabilities by deepening integration of three key chains, raw material adaptation, regional coordination, and value enhancement. We will strengthen wave reduction and shutdown management to ensure safe, stable, long-term, full capacity, and optimal operations. The industry continued to deepen its flexible one head, multiple lines production model, manufacturing market responses, high value-added flagship products. Annual chemical product output exceeded 9 million tons, with proportion of high-end chemical products steadily increasing. Third, high-end equipment manufacturing industry focuses on strengthening and optimizing capability, anchored by the 3812 strategic objectives. It integrates internal resources and vigorously expands domestic and international markets. The smart manufacturing zero carbon park operates to high standards, achieving green manufacturing through green technology with data center and CFH project base established within the dam. Deep integration of European platform talent, technology, and market resources will enhance R&D innovation. Fourth, smart logistics industry focuses on efficient operations through full chain resource integration and systematic cost reduction, enhanced pricing power for core product sales and distribution. Build globally competitive integrated service provider for international community supply chain, aiming for annual logistics throughput of 300 million tons and profits exceeding CNY 240 million. Fully leverage the Tianjiangkou Industrial Park and its geographical advantages to improve turnover efficiency. Develop a coal blending for efficiency model to achieve full chain synergy among coal sources, logistics, and markets. Accelerate construction of logistics hub corridor networks and expand multimodal transport. Complete and commission the dedicated railway line from Caojiahua Yard to Niujialiang mining area, advancing construction of the dedicated railway line for Jiuguan mining area in Xinjiang. Vigorously develop warehouse and waterway transport services, and continuously increase rail and port shipping volumes. Deepen the physical logistics plus digital intelligent logistics. Fifth, new energy sector focuses on resource acquisition, seizing opportunities presented by the power import into Shandong and power export from Xinjiang initiatives will advance projects such as integrated power generation, grid load and storage systems, as well as green hydrogen production at Rongxin Chemical and Xinjiang Energy Chemical. In key development regions including Shandong's core area, Shanxi, Inner Mongolia, and Xinjiang, leveraging existing industrial foundations and increased investment from Zhejiang, we will drive capacity expansion in new energy, implement national strategy of dual integration, linking coal-fired power with coal resources with renewable energy. Commence construction of 350 megawatt ultra supercritical combined heat and power project and Zhaolou power plant phase two, establishing a new generation demonstration project for coal-fired power and comprehensive resource utilization. Two, unlocking potential, boosting profitability, and expanding lean management benefits, deepening lean management initiatives such as the ten enhancements and ten efficiency boosts. We comprehensively elevated quality and efficiency of economic operations. Achieving cost reduction and efficiency gain exceeding CNY 3 billion for the year. Optimize processes to reduce per unit consumption, deepen the three reduction and three improvements and two optimization and three reduction initiatives. Optimize production sequencing, operational workflow, and production organization to minimize per unit consumption. Reduce per ton coal sales cost by 3%-5%. Second, flexible marketing to boost profitability. We comprehensively implement the premium coal and customization, long-term contracts plus direct supply, and national rail plus water transport strategies, rigidly enforce the three focuses and two safeguards measures, strategically increase the proportion of long-term contracts and establish a four-dimensional marketing model. Long-term contract customers as a foundation, market customers as extension, direct supply customers as support, and trading customers as the supplement. Strengthen full process, coal quality control, deepen the three zero projects. We will enhance efficiency of fund utilization. We will achieve CNY 400 million in cost savings and efficiency gain in material and equipment management while reducing inventory by 10%. We will coordinate material resources to optimize inventory, deepen warehouse clearance and inventory optimization, and implement six unifications in equipment management, aiming to achieve CNY 400 million in cost savings and efficiency gains in material and equipment management while reducing inventory by 10%. Three, scientific management and targeted effort to maximize investment value, coordinate capital allocation in investment timing, focusing on high-yield, technological advanced, and synergistic projects. Further optimize investment estimates, strictly control non-essential expenditure, and save over RMB 2.5 billion in CapEx through centralized procurement and optimized bidding processes. Prioritize the advancement of eight major projects. Strengthen supplier and contractor list management alongside project process control. Rigorously manage estimates and settlements, effectively reduce construction costs, and ensure projects commence operations upon completion and achieve efficiency immediately after launch. Mining, adhering to the principle of preserving while facing out, advancing while retreating, we will deepen optimization of our own mines in four key areas: distinct locational advantages, lower disaster risk, rational product mix, and excellent resource endowment. We will orderly shut down and phase out inefficient production capacity, actively promote development of high-quality, efficient mines, and continuously strengthen quality of our mining assets. Coal industry. Closely monitor national policy developments and precisely manage project timeline to ensure steady accumulation and optimized reserves during policy tightening. When favorable policies emerge, concentrate resources to accelerate implementation of ongoing and planned priority projects. This will secure about 70 million tons of new production capacity from 2026 to 2030, achieving raw coal output target of 300 million tons. Shaanxi-Inner Mongolia region will add 35 million tons per year of new capacity. Liusangedan Mine, Huolinhe One Mine, Liusangedan Mine, Yangjiaping Mine, and Galutu Mine will be completed successfully over the next five years, bringing regional capacity to over 80 million tons. The Xinjiang region will add 17 million tons per year of new capacity. Phase one project of Wucaiwan No. 4 Open-pit Mine will reach full production in 2026, increasing output by 4 million tons. The company aims to complete procedures for a second phase project, which will increase capacity to 23 million tons per year. By 2026, bringing regional capacity to over 43 million tons. Gansu region will add 16 million tons per year of new capacity. Liuyuanzi Mine will expand by 900,000 tons per year, and completion of Mafuchuan and Maojiachuan Mines will add 15 million tons per year of new capacity, bringing regional capacity to over 22 million tons. Strategic minerals. Strive to commence construction of the Caosiyao Molybdenum Mine with an annual ore production capacity of 16.5 million tons in the first half of 2026. By 2028, establish a molybdenum mining and deep processing industrial chain, generating an output value of CNY 10 billion, cultivating a new key profit growth driver for the group. High-end chemical new materials industry. Prioritize both extending and strengthening industrial chains and cluster development. Deepen coal chemical synergy, enhance supply chain resilience and security. Boost overall competitiveness and risk mitigation capabilities, and progressively elevate development standards and quality. By 2026, Yongxing Chemicals' 800,000 ton olefin project and Lunan Chemical 60,000 ton polyformaldehyde project will be completed and put into operation, propelling the group's polyformaldehyde POM capacity to the top in China. We will systematically advance construction of Xinjiang Energy Chemical's 800,000 ton olefin project and Future Energy's 500,000 ton high temperature Fischer-Tropsch project, extending the industrial chain. Four, rewarding shareholders, sharing achievements, and setting new standards for value creation since its listing. The group has consistently prioritized shareholder interests, adhering to the principle of shareholders first value sharing. We have actively employed diversified approaches to share development outcomes with investors, distributing cumulative dividends totaling RMB 86.8 billion. In the China Listed Companies Association's 2025 listed companies cash dividend ranking, we ranked 24th in the total dividend payout. In the second half, we will implement measures including dividend distribution and share buyback to tangibly enhance value creation and return capabilities. First, we will continue interim dividend distribution. A cash dividend of RMB 0.18 per share, representing above 40% of first-half net profits, will be distributed, totaling RMB 1.8 billion. This sustains positive synergy between the group's healthy development and investor returns. Second, share buyback and increases will be executed at opportune times. The group plans to invest RMB 50 million-RMB 100 million to buy back A-shares and RMB 150 million-RMB 400 million to buy back H-shares. The controlling shareholder has committed to no reduction in holdings and timely increases, demonstrating tangible actions to repay investor trust and drive sustained value growth for the group. Honorable investors and friends, in the second half of the year, with improvements in the supply-demand structure and the recovery of coal prices, coupled with the group's concentrated release of incremental profits, strengthened implementation of cost control and expense reduction to enhance operational efficiency, the continued synergistic advantages of the chemical industry and consolidation of seabed mining to bolster operating profits, the group's performance is expected to improve sequentially. Our confidence stems from our heritage, and our breakthrough hinges on execution. The current cyclical adjustment in the coal market presents a shared challenge for the industry, yet it offers genuine competitive enterprises a crucial opportunity for resource consolidation, survival of the fittest, and countercyclical growth. With three decades of deep industry expertise and having weathered multiple cross-cyclical trials, Yankuang Energy possesses the confidence, capability, and resilience to navigate complex internal and external environments. Looking ahead, we'll pursue our goals with unwavering determination and pragmatic actions. By fully leveraging our substantial advantages, abundant resources, comprehensive synergy, and lean management, we'll scientifically seize development opportunities within the industry cyclical adjustment. We'll drive the group towards a more optimized structure, higher quality, and improved efficiency across all dimensions. This will solidify our competitive edge for high-quality leapfrog development, accumulate robust momentum, and deliver outstanding results to create greater value and higher returns for our shareholders. Thank you all