1Q25 results slightly miss our and market expectations

Pingdingshan Tianan Coal Mining announced its 1Q25 results: Revenue was Rmb5.4bn, and attributable net profit fell 79.5% YoY and 50.2% QoQ to Rmb152mn, missing our and market expectations, mainly due to price declines amid weak supply and demand dynamics of coking coal.

Earnings under pressure as prices decline.

Output and sales volume: Raw coal output rose 0.87mnt YoY and 1.03mnt QoQ to 7.50mnt in 1Q25. We attribute the low base in 2024 to the production suspension of 12 mines in early 2024 and strict safety supervision measures in full-year 2024. In addition, the firm has consolidated Xinjiang Wukeshu coal mine starting in 2025, and the mine’s output in 1Q25 was about 0.33mnt. In 1Q25, sales volume of commercial coal fell 0.6mnt YoY and 0.8mnt QoQ to 6.32mnt, which we attribute to tepid demand.

Prices: In 1Q25, the overall ASP was Rmb763, down Rmb393 YoY and Rmb270 QoQ. Due to weak supply and demand dynamics, the long-term contract price of prime coking coal has been trending lower each quarter since 2024. In 2M25, the firm lowered the long-term contract price of prime coking coal to Rmb1,770, and further cut the price to Rmb1,540 in March, as falling spot prices triggered a circuit breaker, down over Rmb600 YoY.

Costs and gross profit: Thanks to production recovery and cost reduction efforts, the firm’s cost per tonne was Rmb616, down Rmb218 YoY and Rmb173 QoQ. Gross profit per tonne was Rmb147, down Rmb175 YoY and Rmb97 QoQ.

Expenses fell visibly YoY. In 1Q25, the firm’s G&A expenses fell 57% YoY to Rmb153mn, financial expenses fell 27% YoY to Rmb288mn. SG&A expenses and R&D costs fell 33% YoY to Rmb562mn, mainly due to the production suspension of 12 mines in 2024, a high base for expenses, and strengthened expense control.

Capex remained high. In 1Q25, inventories rose Rmb381mn YoY, mainly due to around 0.70mnt of cola inventory. Net operating cash flow was Rmb475mn, capex was Rmb1.69bn, and liability-to-asset ratio was 63%.

Trends to watch

Weak supply and demand dynamics of coking coal; earnings weaken as prices decline. In 2Q25, the long-term contract price of prime coking coal was further cut by Rmb80 to Rmb1,460 (compared to Rmb2,120/t in 2Q24), a sharper decline than we expected. Given tepid demand and no significant reduction in domestic and imported supply in the near term, we expect prices to remain weak in the near term, weighing on 2Q25 earnings.

The firm guides output growth and cost decline in 2025. According to corporate filings, the firm expects coal output to grow 17% YoY to 30.93mnt. Specifically, it targets 12.39mnt of clean coal output (up 3% YoY) in 2025, implying a clean coal yield of around 40% (the yield was higher in 2024). In addition, the firm expects to cut controllable costs by 10% (controllable costs account for 70% of the total costs) to offset downward pressure on prices.

Financials and valuation

As the cut to long-term contract price in 2Q25 beats our expectations, we lower our 2025 and 2026 earnings forecasts 34% and 27% to Rmb790mn and Rmb1.02mn, implying 26x 2025e and 20x 2026e P/E. Given the sector’s weak cyclicality, we remain upbeat on the growth of high-quality coking coal companies in the medium and long term. We maintain an OUTPERFORM rating and target price of Rmb9.5, implying 30x 2025e and 23x 2026e P/E and offering 14% upside.

Risks

Disappointing demand; higher-than-expected domestic production and imports of Mongolian coal; possible risks in resource auctions.