CICC: Maintains YANCOAL AUS outperform rating with a target price of HKD 29

According to the Zhitong Finance APP, China International Capital Corporation (CICC) released a research report stating that considering the upward adjustment of cost assumptions, it has lowered Yancoal Australia (03668)'s 2025E profit by 11.5% to AUD 473 million, while maintaining the 2026E profit largely unchanged. The current stock price corresponds to a 14.4x/8.9x 2025/26E P/E ratio. The firm has switched the valuation to 2026, maintaining an outperform rating and a target price of HKD 29, corresponding to a 15.6x/9.6x 2025/26E P/E ratio, implying an 8% upside potential.

CICC's main points are as follows:

The company recently released its 3Q25 operational report.

1) 3Q25 production decline: The equity commodity coal production was approximately 9.3 million tons, down 9% year-on-year and 2% quarter-on-quarter. The production pace was mainly disrupted by rainfall, but overall it remained within the company's expectations.

2) 3Q25 sales increase: The self-produced commodity coal equity sales were approximately 10.7 million tons, up 3% year-on-year and 31% quarter-on-quarter. Among them, the thermal coal equity sales were 9 million tons, flat year-on-year and up 33% quarter-on-quarter, while the coking coal equity sales were 1.6 million tons, up 17% year-on-year and 22% quarter-on-quarter. The significant quarter-on-quarter increase in sales was mainly due to the smooth delivery of sales that were delayed in 2Q25 due to weather reasons.

3) 3Q25 selling price decline: The comprehensive selling price of self-produced commodity coal was AUD 140 per ton, down 18% year-on-year and 1.4% quarter-on-quarter. Among them, the selling price of thermal coal was AUD 130 per ton, down 17% year-on-year and flat quarter-on-quarter (in USD terms, the market price of 5500 kcal Australian coal in 3Q25 was down 21% year-on-year and up 1.5% quarter-on-quarter, while the market price of 6000 kcal Australian coal was down 23% year-on-year and up 9% quarter-on-quarter); the selling price of coking coal was AUD 195 per ton, down 25% year-on-year and 1% quarter-on-quarter (in USD terms, the market price of premium coking coal from the Australian Peak Downs mine in 3Q25 was down 13% year-on-year and down 0.5% quarter-on-quarter). The company's coal selling prices were weaker than market prices, mainly due to shipping delays, lagging sales prices, and the depreciation of the USD against the AUD.

4) Cash remains relatively abundant. As of 3Q25, the company's cash balance was AUD 1.8 billion.

5) The company maintains its guidance for 2025 unchanged, which is an equity commodity coal production of 35-39 million tons (the company expects the full-year production to be close to the upper end of the range, consistent with previous guidance), cash operating costs of AUD 89-97 per ton (the company expects the full-year costs to be near the midpoint of the range, while previously the company indicated potential for costs to be below the midpoint), and equity capital expenditures of AUD 750-900 million.

Weather-related temporary disruptions to costs

The company stated in a public communication that, in addition to the impact of rainfall in the third quarter, the delays in coal shipments in the second quarter also caused affected companies, including itself, to incur additional demurrage fees, leading to increased costs. The company expects this impact to dissipate as coal transportation becomes smoother. Overall, coal prices in 4Q25 are expected to improve. Considering the improvement in supply and demand in the second half of the year, coal prices are expected to rise, which the firm anticipates will help restore the company's profit margins