China Coal Energy Company Limited (1898) Earnings Call Transcript & Summary

Dear investors and analysts, good afternoon. I'm Jiang Qun, Board Secretary of China Coal Energy. Welcome to our results presentation. Present at today's meeting are Mr. Gao Shigang, Deputy Secretary of the Party Committee; Executive Director and President of the company, Mr. Zhan Yanjing; Independent Non-Executive Director, Mr. Chai Qiaolin, Chief Financial Officer; as well as responsible Head of relevant staff from the Securities Affairs Department, Planning and Development Department, Finance Department, Coal Business Department, Chemical Business Department, Power Business Department and Marketing Management office. We would like to express our heartfelt thanks for your long-term care and support for the company. Now I will present China Coal Energy's operating results for the first half of 2026 and our key work arrangement for the second half. Unless otherwise specified, all figures below are calculated on the Chinese Accounting Standards for Business Enterprises. Number one, operating results and key features for the first half. In the first half, China Coal Energy resolutely implemented the decisions and arrangements of the Party Central Committee and the State Council deeply pursued the development philosophy of enhancing efficiency for existing assets and transitioning to incremental grid, actively responded to various risks, challenges and multiple operating pressures. Our production and operations maintained a sound momentum. Under the Chinese accounting standards, we achieved operating revenue of CNY 73.13 billion, profit of CNY 12.46 billion, up 4.4% year-on-year. Net profit attributable to shareholders was CNY 8.14 billion, up 5.8%. Basic earnings per share were CNY 0.61, up 0.2%. Net cash flows from operating activities were CNY 9.86 billion, an increase of CNY 2.19 billion or 28.6% year-on-year growth, continuing to maintain a sound profitability level and cash generation capability. Under International Financial Reporting Standards, we achieved operating revenue of CNY 73.13 billion and profit before tax, CNY 12.42 billion, up 7.1%. Profit attributable to shareholders was CNY 8.19 billion, up 11.8%. Basic earnings per share were CNY 0.62, up 12.7%. The company's production operations in the first half featured the following: first, stable and orderly production and operations. In the first half, our core business overcame challenges such as changing geological conditions and greater production organizational difficulties in some mining areas. We have achieved a commercial coal production of 61.95 million tonnes. We further strengthened the production sales coordination mechanism and seized the window of rising coal prices, different product segmentation and market segmentation and made every effort to increase sales and create value, achieving commercial coal sales of 119.7 million tonnes, of which self-produced commercial coal sales amounted to 61.4 million tonnes. Our coal chemical business strengthened facility operation and maintenance management focused on a lean production and product differentiation and achieved production of major coal chemical products of 3.01 million tonnes. We actively expanded sales channels, strengthened production sales coordination, carried out targeted marketing by category and achieved sales of major coal chemical of 3.235 million tonnes with efficiency and profitability remaining industry-leading. Number two, steady recovery in prices of major products. In the first half, the prices of our major products, including coal and chemicals, rose with market trends. The average selling price of self-produced commercial coal was CNY 524 per tonne, up CNY 54 per tonne or 11.5%. Among these, the selling price of thermal coal was CNY 494 per tonne, up CNY 58 per tonne or 13.3%. The selling price of coking coal was CNY 1,017 per tonne, up CNY 132 per tonne or 14.9%. The selling price of bulk trading coal was CNY 549 per tonne, up CNY 77 per tonne or 16.3% year-on-year. The selling price of polyolefins was CNY 7,017 per tonne, up CNY 336 per tonne or 5%. The selling price of urea was CNY 1,828 per tonne, up CNY 76 per tonne or 4.2%. The selling price of methanol was CNY 1,868 per tonne, up CNY 98 per tonne or 5.5% year-on-year. The selling price of ammonium nitrate was CNY 1,902 per tonne, up CNY 19 per tonne, basically flat. Number three, tapping potential improving quality and efficiency. In the first half, we dynamically adjusted our product mix in response to market demand, increasing the average calorific value of the thermal coal by nearly 200 Kcal per tonne. We continuously improved our refined management level and steadily enhanced the overall quality and efficiency. The unit sales cost of self-produced commercial coal was CNY 285.69 per tonne, up CNY 22.72 per tonne or 8.6%, mainly due to higher fixed costs from lower output, higher labor costs from converting some outsourced teams to self-operated teams. Our core chemical business remains focused on the goal of a safe, stable and long-cycle full load and excellent operation. We have strengthened equipment management, optimized the facility operations and reasonably controlled cost expenditures, keeping unit sales cost of major coal chemical products within a reasonable range. Among them, the unit sales cost of polyolefins was CNY 5,674 per tonne, down CNY 757 per tonne or 11.8%, mainly because the polyolefin facility underwent planned major maintenance in the same period last year. The unit sales cost of urea was CNY 1,280 per tonne, up CNY 17 per tonne or 1.3%, mainly affected by higher purchase prices of raw coal and fuel coal. The unit sales cost of methanol was CNY 1,370 per tonne, up CNY 66 per tonne or 5.1%, mainly affected by higher purchase prices of raw coal and fuel coal. The unit sales cost of ammonium nitrate was CNY 1,893 per tonne, up CNY 509 per tonne or 36.8%, mainly affected by the planned major maintenance of the ammonium nitrate facility in this period. Number four, steady and sound operating performance. Against the backdrop of lower coal output and rigid cost increases, we adopted multiple measures to hedge against the cost pressures and achieved total profit of CNY 12.46 billion. The main profit change factors were as follows: first, major profit increasing factors, higher selling prices of self-produced commercial coal increased profit by CNY 3.3 billion. Second, chemical business increased profit by CNY 878 million. Third, the power business increased profit by CNY 172 million. Fourth, investment income and other income increased by CNY 60 million. The profit reducing factors: first, higher unit sales cost of self-produced commercial coal by CNY 1.36 billion; second, lower sales volume of self-produced commercial coal reduced profit by CNY 1.17 billion. Third, nonoperating income expenses reduced profit by CNY 483 million. Fourth, higher taxes surcharges and period expenses reduced profit by CNY 459 million. Fifth, the equipment and financial business reduced profit by CNY 425 million. Number five, accelerated construction of the key projects. In the first half, all process units of the second phase coal chemical project in Yulin, Shaanxi, with annual polyolefin capacity of 900,000 tonnes have been mechanically completed. The Liquid Sunshine demonstration project of Ejin Horo Energy Chemical has entered the trial operation stage. The 2,660-mega coal power integration project in Wuxuan has fully moved into the equipment installation stage. The 100-megawatt wind power project in Yuyang, Shaanxi, undertaken by Shaanxi Company has commenced construction and Shanghai Energy Company completed the 100% equity acquisition of a 400-megawatt fishery solar complementary PV project in Leizhou Sea area of Qigong. Number six, interim dividend to reward shareholders. Since our listing, the company's total cash dividends have exceeded CNY 46 billion, striking the best possible balance between interest of shareholders and the company's sustainable development. We have implemented interim dividends for 3 years in a row for 2026 interim period, we plan to distribute cash dividend of CNY 2.44 billion or CNY 0.184 per share. The above dividends are expected to be distributed before the end of October 2026. Two, key work arrangement for the second half. The company will thoroughly implement the decisions and arrangement of the CPC and the Council adhere to the general principle of pursuing progress while ensuring stability and leverage implementation of the 15th Five-Year plan to deepen and state-owned enterprise reforms as key drivers of high-quality growth. First, we will adhere to the coal power, chemical, new energy multi-industry coupled development pathway, coordinate intelligent, green and integrated development. Second, we will continue benchmarking against the world-class standards, strengthen present decision-making, deepen production sales coordination all out to improve quality and efficiency. Third, we will persist in driving development through reform and innovation, actively carry out reforms of management and operating mechanisms, deeply advance key core technology breakthroughs and build a high-level innovation system. Fourth, we will uphold the systematic thinking and bottom line thinking, give full play to the penetrating supervision role of the intelligent control platform and strengthen work safety as well as environmental protection and energy conservation. Number five, we'll continue to deepen market value management and continuously improve corporate governance and information disclosure quality. Dear investors and analysts, the company's management and all colleagues will stay focused on our goals, remain confident, take proactive actions and forge ahead with determination. We'll continue to advance high-quality development and strive to deliver better results. That's all for my presentation. Now opening the floor for Q&A. Thank you.

[Operator Instructions] We are taking the question from investor with the phone number ending in 0151, please provide your name and institution.

I'm an analyst from Guosen Securities. I'm Zhang Jinming. I have 2 questions. First, as mentioned earlier by Mr. Jiang, in Gansu Province, there were some in-depth cooperation. And in July, you have also signed a provincial level cooperation with the provincial government involving a large-scale investment. So in terms of the collaboration with Gansu Province, what's the specific plan for the future? And also what tasks and missions will be carried out by the joint stock company?

I'd like to ask our strategic planning department colleague to answer the question.

Thank you for the question. In July, the group has signed a strategic cooperation agreement with the Gansu Province and planning to build the energy base of China Coal Yudong, which are the Tangshan coal mine and Nanzhuang coal mine have obtained a geological reserves of about 1.75 billion tonnes with an annual production capacity of 9 million tonnes. At present, the company has established a wholly owned subsidiary, the China Coal Gansu Energy to advance the preliminary work of the project. Currently, we have not reached the stage of actual investment, and we will disclose further information later. Thank you.

I have a follow-up question in the first half regarding all the cost items. In the first half, the expenses the non-operating expenses are CNY 500 million more than same period last year. There may be some specific projects involved, including the payment of the late fees and as well as the taxes and surcharges and also the resource tax and land use tax, I think these costs has increased compared with last year. So I just wanted to know the reasons behind them and the outlook for the expenses in the future.

I'll ask our finance colleague to respond to the question.

Thank you. In the first half, for well-known reasons and also according to the requirements of the state taxation administration, we carried out a special tax work. So it's true that the nonoperating expenses and taxes and surcharges have increased. This tax payment is a result of previous practical standards and its differences against the current practice. For example, the identification of high-tech and also there are some differences caused by the division of raw coal and washed coal and these led to the increased tax items. And we have paid these taxes according to the requirement of the tax bureau. And all of these expenses have been disclosed in the interim results. Thank you.

Next question, investor with the phone number ending in 6322. Please provide your name and institution.

I'm Jingshan Feng Jimmy from Citi. I have several questions to go through. The first one is about our production capacity. Our capacity in H1 is down a little bit. And of course, there is the Shanxi incident to consider. But -- my question is, of course, if any accidents happen to other manufacturers, does that affect our production? Has it recovered? We have heard that post the accident, the security inspection is stricter than before and more to come in the future. So my question is that do you think the production volume can go back to the pre-incident level? And how is the recovery going?

Do you want to go through all your questions? Or is it one by one? One by one, thank you. Okay. My understanding of your first question is that it comes in 2 parts. The first one is the regulatory policy for the whole sector and also the prospect of all the main coal manufacturing provinces and their capacity. Okay. I will give the floor to our marketing office colleague and also how the safety inspection policy is going.

Okay. Thank you for your question. In H1 2026, especially in the second half of May, the Shanxi coal mines incident has affected the production of the entire sector. And after that, the competent authorities have initiated the security checks and the inspection on the overproduction conditions and also modifications and rectifications are underway. Based on the current trend, I don't think it will ease up this year. And this year for the entire coal sector, the impact on the production and overall volume is quite clear. And if you consider the numbers from January to June, the total volume was down by 1.7% or it's 40 million tonne less. And from January to May, the imported coal was down by 10 million tonnes. But after the lower production in June, more imported coal, about 3.8 million tonnes more. And we have much of our production area in Shanxi as well. So it's a huge impact on us. But the upside is that for China coal, we are sticking to our overall production schedule, and we're trying to make adjustments according to our whole year's production plan. From Mr. Jiang Qun, about our company's production volume in H1, it's down by 3.39 million tonnes year-over-year, down by 8%. As Mr. Li has said, it's affected by the tightening rules about safety inspection. And also for some of the mining areas, we have complicated geological conditions and it's harder to organize production. So that also played a part. And in the second half, we plan to stick to our original production plan and try to catch up here. But frankly speaking, since the inspection for safety has tightened, and we are strictly compliant with the safe production for each month. So while we try to meet our annual production target set at the beginning of this year, but for the actual result at the end of the year, it comes down to our actual execution. That's what I wanted to add. Do you have any other questions?

Okay. I have 2 more questions. I will cover them both. So our in-house product selling price was up to almost the market average, and it grew more than the LTA products. I wonder why that is. And then about our costs, what's your outlook for the H2 costs because costs were up a little bit for the first half of the year. And I wonder how the cost would be in second half of the year on a year-over-year basis.

Okay. For our self-developed coal selling price changes, from Ms. Xu from Finance Department. Okay. The price is at RMB 524, up by RMB 54 per tonne for the power for the fuel coal up by RMB 58 per ton, and it's because we have optimized the Pingshuo product mix. The average calorific value is up by 200 kilo calories and also the LTA pricing in the market has gone up, also lifting our selling price. And thirdly, Shanghai Datun is also a part of the fuel coal and it is also sold in combo with the coking coal. The price has gone up by RMB 82 per tonne. Those are so much for the reasons. As for the cost trend in the second half of the year, it goes to our Chief Finance Officer, Mr. Chai.

Okay. It's a good question. We have covered this question before. We have already told our investors that it's normal to have about minus plus 10% of the cost fluctuations. And we are a modernized, highly efficient mining-based production type of manufacturer. And since we have strengthened the unified procurement, better management there, and we have introduced the digitalized intelligent technology, and we have got more of the innovative operational cost control and better management there, yielding good results. And in H1, our cost was up by RMB 22, up by 8.6%. Well, for various reasons, our overall production volume was down. And of course, that affects our costs. For example, RMB 6 that went into depreciation and amortization. But for the operational expenses, it has a lot to do with the sales method. Some of the cost we have to pay for the shipping fee. If it comes in a larger volume, then it affects the overall cost. And also, it has a lot to do with how we spend our dedicated funds. We have a timetable for it. And in H1, the production volume was down. So this year, we have to use less of the dedicated fund. And relative to the same period last year, we spent RMB 470 million more. And so that means the cost would be higher than before. Well, it has a lot to do with the coordinated production schedule and the changing production volume. And also, you have the remuneration and social security payment for our employees. And since we have reduced the outsourced labor and we have more in-house labor use, that has increased our costs, too. So those are all normal. As for H2, I would say the costs are all controllable. We are looking at some of the improvement and also production volume in H2 would be better than H1 because we're trying to catch up with better utilization of the regulations. And for our own management and administration, it will only be more optimized. But as for the whole year's cost, is it really on par with last year or even better than last year? Not necessarily because we want to prioritize the profitability, not the overall expenses. I hope that answers your question.

Chai and Jiang, I have no other questions.

The floor goes to the participant whose phone number ending 2948. Please name yourself and your institution.

I am from Changjiang Securities. Congratulations on your good interim results. I have only one question. Because in H1 this year, the profitability of chemicals has been improved. For example, for urea and polyolefin, what's the outlook for H2 and for the next year because we are also onboarding some new projects, right? Are we looking at a better margin profile?

Sorry, your question -- well, your voice was a bit choppy. So let me check with you. You are asking about -- okay, let me clarify. I'm putting on a head piece. Okay. Would you mind repeating your question?

Of course, of course. I'm from Changjiang Securities, I'm Sun Chu. First, congratulations on your excellent interim results. And in H1, the chemical sector has received a lot of attention and your business here has grown on a year-over-year basis. So for second half of the year and also for next year, what's your outlook of your chemicals business? And what's your expectation for the costs and profitability?

Okay. The floor is yours, Mr. Xu from the Chemical department.

Okay. Thank you for your question. For the chemicals business in H2 and next year, let's first talk about our production. In H2, we're not looking at much growth. The only growth is coming from Phase 2 of Yulin. It will go online in H2, but it will only contribute incremental volume in next year. And next year, we're looking at 900,000 tonnes more of polyolefin because if it goes online this year, next year, it will start producing more. As for our other businesses, other capacity, they are staying at the current level, no incremental growth. Secondly, for the profitability, the overall chemical sector is -- keeps a good margin, especially for the polyolefin business. We can -- we do not have a clear read on the market now, but I would say for second half of the year, polyolefin would fluctuate within a band at the higher level at a elevated level. And the overall margin in H2 would be on par with H1. And next year, with more incremental growth, we are looking at a higher margin. Thank you.

The floor goes to the participant whose phone number ends in 8130. Please name yourself and your institution.

I'm analyst from Orient Securities. I have a question regarding the coal mines in Weizigou and Libi. It seems that there are some delay. Can you share more details about that?

I would address this question. So for these 2 coal mine construction project, one in Libi and one in Weizigou. So we have adjusted the timing and interim report, and there are 2 reasons for that. At the beginning of this year, during the construction process, there were some incidents, one for each leading to the shutdown. As you know, now the safety supervision is very strict. So that has affected the project schedule. For the Libi coal mine, the incident was due to the exploration of gas. So the gas that's explored is quite different from the actual gas content, and this has also led to the delay. At present, one could expect a 1-year delay roughly for each coal mine. So for the Libi mine, the production is likely to start in 2028. And for the Weizigou coal mine, the production will start to the end of '27. We would update you on any further progress of the project.

I have another question. So in the first half, the proportion of self-produced coal borne by railway transportation and the port handling expenses has increased. So I'd like to know -- from a sales structure point of view, what is the company's current idea? Is this structure sustainable?

Okay. I would engage colleagues from marketing office to address this question.

Thank you for the question. The sales mix for the joint stock company has not changed much. But in our daily operation and management, we will make some minor adjustment corresponding to the market prices to the stock market. So the amount of the water-borne coal in the first half is slightly higher, including some logistic costs are slightly higher. Because of that, the sales of the water-borne coal has also increased. And also the contractual volume for the water-borne coal has also increased. But this change in the sales mix was not that much. Looking onward, I think the overall mix will remain stable. That's all.

Next, the floor goes to investor with the phone number ending in 6402. Please provide your name and institution first.

Dear investment -- dear management, I am from Guohai Mingxing Securities. I'm an analyst, Ma Xuanshuang. I also have a question about taxation. Regarding the tax payment in the first half, are they done? Are there any additional taxes to be paid later, including the land tax as part of the tax surcharges? Or will this proportion stay the same? And my second question is about the selling price of the company's thermal coal -- so the thermal coal prices increased by 90% year-on-year and the price of the thermal coal in the company increased by 58% year-on-year. So considering that the proportion of the company is relatively high in long run. So what's the reason behind this?

Okay. I would engage Ms. Tao to answer the question about tax.