Low-carbon And Multi-Energy Projects Will Redefine Operations Amid Market Risks

Key Takeaways

• Strategic focus on innovation and low-carbon transition is set to enhance future earnings through efficiency improvements and new revenue streams.
  
• Expansion into multi-energy forms will drive growth and diversification, potentially boosting revenue and net margins.
  
• Declining coal prices and increased capital expenditure pose risks to China Coal Energy's revenue, profit margins, and financial stability amidst market volatility.

Catalysts

China Coal Energy Company Limited mines, produces, processes, trades in, and sells coal in the People’s Republic of China and internationally.

• China Coal Energy's strategic focus on innovation and low-carbon transition, including projects like Liquid Sunshine and carbon capture technologies, is expected to drive efficiency improvements and new revenue streams, enhancing future earnings.
  
• The company's expansion into multi-energy forms, including coal-based new energy, hydrogen, and energy storage, positions it well for future growth and diversification, potentially boosting revenue and net margins.
  
• Planned increases in production and new project rollouts, such as the Yulin Phase 2 coal chemical industry and various power plant projects, are set to enhance capacity and drive future revenue growth.
  
• The significant increase in planned capital expenditures, particularly in new energy and technological transformation, indicates a commitment to growth and modernization, which could improve future earnings and operational efficiency.
  
• Continued focus on shareholder returns through consistent dividend payouts and strategic market cap management suggests a steady improvement in financial health and investor confidence, likely positively impacting earnings and stock value.

China Coal Energy Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming China Coal Energy's revenue will decrease by 1.9% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 10.2% today to 8.7% in 3 years time.
• Analysts expect earnings to reach CN¥15.5 billion (and earnings per share of CN¥1.17) by about April 2028, down from CN¥19.3 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting CN¥19.0 billion in earnings, and the most bearish expecting CN¥12.1 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.2x on those 2028 earnings, up from 5.3x today. This future PE is greater than the current PE for the HK Oil and Gas industry at 6.2x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.02%, as per the Simply Wall St company report.

China Coal Energy Future Earnings Per Share Growth

Risks

• The text indicates a decrease in self-produced commodity coal price by CN¥5 billion, which has been a significant factor reducing profit; this suggests a risk of continued pressure on revenues and net margins if coal prices remain low.
  
• The company's profitability was better than central SOE averages despite declining coal prices and output, but the net profit attributable to shareholders decreased by 1.1% year-on-year; sustained pressure on prices could further impact net earnings.
  
• The company's total profit declined by 44% year-on-year, largely due to market price declines in coal and coal chemicals, pointing to high vulnerability in earnings due to market volatility.
  
• Although there was an increase in coal production and sales, some regions saw reductions, such as a 5.7% decrease in Coal Chemical product output, which can impact future revenue growth if this trend continues.
  
• High capital expenditure plans (an increase of 41.7% compared to the previous year) could strain cash flows and financial stability if not matched by equivalent growth in revenues and profits.

Valuation

• The analysts have a consensus price target of HK$9.071 for China Coal Energy based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of HK$10.76, and the most bearish reporting a price target of just HK$5.94.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CN¥178.8 billion, earnings will come to CN¥15.5 billion, and it would be trading on a PE ratio of 9.2x, assuming you use a discount rate of 8.0%.
• Given the current share price of HK$8.18, the analyst price target of HK$9.07 is 9.8% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.