J.P. Morgan: Higher coal prices boost Yankuang’s third-quarter profit as net debt also rises

Why did third-quarter profit rise?

Yankuang’s third-quarter net profit attributable to shareholders was 3.968 billion yuan, up 24% quarter on quarter and 74% year on year; core profit was 3.937 billion yuan, up 11% quarter on quarter. Net profit attributable to shareholders for the first three quarters was 11.12 billion yuan, broadly in line with its earlier earnings guidance of approximately 11.1 billion yuan and equivalent to 67% of Bloomberg’s full-year 2026 market consensus forecast.
The average selling price of thermal coal rose 9% quarter on quarter and unit sales costs fell 5%, lifting gross profit per tonne to 277 yuan, up 27% quarter on quarter. The average selling price of coking coal rose 19%, outpacing the 1% increase in unit costs, and gross profit per tonne rose to 715 yuan, up 37% quarter on quarter.
Improved prices and costs offset lower sales volumes: sales of both thermal and coking coal fell 5% quarter on quarter. Management attributed weak domestic production to market-driven production cuts in Xinjiang and safety and geological disruptions in other regions, and expects production to recover in the fourth quarter.

The chemicals business contrasted with coal: scheduled maintenance contributed to a 17% quarter-on-quarter decline in third-quarter sales volumes. Unit costs rose 7%, faster than the 2% increase in selling prices, and gross profit per tonne fell 9% to 1001 yuan.
Third-quarter operating cash flow rose 52% quarter on quarter to approximately 11.7 billion yuan, but higher capital expenditure limited conversion to free cash flow. Net debt rose from 74.7 billion yuan at the end of the second quarter to 86.5 billion yuan at the end of the third quarter, while the net gearing ratio rose from 41% to 45%.
JPMorgan identifies high capital expenditure and coal price volatility as risks to dividend payments.

JPMorgan expects earnings to continue growing quarter on quarter in the fourth quarter: as of the report date, the fourth-quarter average price of Qinhuangdao 5500 kcal thermal coal was approximately 15% above the third-quarter average. Only around 23% of the company’s sales volume is covered by long-term contracts, and its greater spot exposure allows it to benefit from rising coal prices.
The outlook for coking coal warrants caution. Following a recent increase in supply, fourth-quarter coking coal prices were approximately 3% below the third-quarter average as of the report date; JPMorgan believes the coal price boost from supply disruptions in Indonesia may be short-lived.

Management expects coal production to increase by 8 million to 10 million tonnes in 2027, with contributions from the commissioning of projects associated with Northwest Mining, Wucaiwan’s transition from construction to commercial production, and a full year of production from Kestrel, in which Yancoal Australia holds an 80% stake.
JPMorgan maintains neutral ratings on Yankuang’s A-shares and H-shares, with price targets for December 2027 of 22 yuan and 12.50 Hong Kong dollars, respectively.