Yancoal Australia Limited

YAL Details

Yancoal Australia Limited (ASX: YAL) is involved in the production of coal as well as coal chemicals, manufacturing of the mechanical as well as electrical equipment and power and heat generation.

H1FY21 Result Performance (For the Period Ended 30 June 2021)

• The company experienced 10% YoY decline in revenue in H1FY21, mainly due to the impact of lower coal sales.
• Operating EBITDA reduced to $406 million in H1FY21, down by $82 million. It reported a net loss after income tax attributable to members (after non-recurring items) of $129 million in H1FY21 compared to the net profit of $605 million in 1HFY20.
• The cash and cash equivalents stood at $539 million as of 30 June 2021. It had more than $800 Mn of the undrawn debt across the various facilities.

Key Data (Source: Company Reports)

Outlook

In H2FY21, the company will emphasise on growing the proportion of the higher quality thermal it produces in order to capture more of the price arbitrage between the API5 and GCNewc indices.

Besides, the company has required approval in place to increase the production of annual ROM to 24 million tonnes (16 million tonnes from the open cut mine and 8 million tonnes from underground) from 21 million tonnes at Moolarben.

Apart from its organic growth prospects, the company is also looking at inorganic opportunities like acquiring additional coal assets or expanding into other minerals, energy, or renewable energy projects.

The company guided achieving operating cash costs (excluding government royalties) of $62/t - $64/t in 2021. It also estimates the saleable coal production of around 39 million tonnes (attributable) in 2021. YAL is expected to incur a capital expenditure of $360 million - $380 million (attributable) in 2021.

Key Risks

The group is exposed to various financial risks that comprise interest rate risk, credit risk, and liquidity risk. Further, it is prone to currency risk as its export coal sales are denominated in US dollars and any adverse movement in the Australian dollar against the US dollar would hurt its earnings and cash flow settlement.

Stock Recommendation

YAL has delivered 6-month and 9-month returns of ~+60.18% and ~+41.04%, respectively. The stock is trading towards the 52-week higher levels.

Meanwhile, the company’s net margin stood at a negative 7.2% in H1FY21 compared to the positive industry median of 12.7%. Further, its EBITDA margin remained significantly lower in H1FY21 at 19.8% compared to the industry median at 36.5%. The company’s debt to equity ratio remained higher at 0.76x in H1FY21 versus the industry median at 0.53x.

Considering the above facts and the associated business risks, we advise the investors to liquidate the stock.

Thus, we give a “Sell” rating on the stock at the current market price of $3.58 per share (Time: 1:00 PM (GMT +10), Sydney, Australia) on 4^th October 2021.

Technical Overview:

Chart:

Source: REFINITIV, Purple Color Line Reflects RSI (14-Period)

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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