2025 profit below consensus; resilient coal price to support 2026 earnings

2025 profit below consensus; resilient coalprice to support 2026 earnings Target PriceHK$38.00(Previous TPHK$31.00)Up/Downside12.6%Current PriceHK$33.76 Yancoal’s(YAL)net profit in 2025came in at A$440mn (-64%YoY),which is15% below Bloomberg consensus but 20% above our estimates due to the highearnings sensitivityto the unit cash margin.YAL declared a final dividend ofA$0.122/shr. This, together with the interim dividend of A$0.062/shr, implies apay-outratio of 55%whichis in line with YAL’s dividend policy.Looking into2026, we forecast 3% attributable sales volume growth along with ~1% increasein unit cash cost due to the sticky raw material cost inflation.Meanwhile, werevise up our coal price assumptions by 8%/7% in 2026E/27Eas we see signsof coal price stabilisationYTD.Our earnings forecast for 2026E/27E isthereforerevised up by 26%/10%.We maintainourBUYratingon YALdue to(1) resilientseabornecoal priceunderpinned bythe production cut policy in Indonesia(quota to reduce by 24% to 600mt), (2)healthy balance sheet(A$2bn net cashby end-2025)and consistent dividend policy (50% of after-tax profit or free cashflow, whichever is higher).Our NPV-based TPis revisedup toHK$38(fromHK$31),as we revise up our long-term thermal coal price assumption(toA$140/t)to reflect potentially higher power demand. China EnergyWayne FUNG, CFA(852) 3900 0826waynefung@cmbi.com.hk Stock Data Key highlights in 2025 results.Revenue dropped 13% YoY to A$5.83bn,as the 1% YoYattributablecoal sales volume growth (to38.1mt) was morethan offset by the17% YoY decline in blended coal ASP (to A$146/t).Otherincomedropped 53% YoY to A$74mn due to the lack ofFX gains(A$149mnin2024).Net profit declined 64%to A$440mn due to operating de-leveraging.In 2H25,revenue/net profit dropped 12%/65%YoY toA$3.2bn/A$277mn. Unit cash costdropped only 1%YoYin2025.YAL achieved unit cashcost (excluding royalties) of A$92/t in2025. The reduction is less than ourexpectationgiven the high utilisation rates of mines.Given the recentincrease in raw material cost, we expect an elevated unit cash cost in2026E-27E. Healthy cash position.As atend-2025, Yancoal hadgrosscash of A$2bn,equivalent to ~25% of the current market cap. 2026guidanceintroducedby YAL:(1)attributable saleable production:36.5-40.5mn tonnes (-5% to +5% YoY); (2) operating cash cost (excludingroyalties): A$90-98/t (-2% to +7% YoY); (3)capex: A$750-900mn (up 0%-20% YoY). Auditor: ShineWing Australia Related Reports1.YancoalAustralia Key risks:(1) further decline in coal price; (2)elevatedinputcost; (3)extreme weather that affects production and delivery..Earnings Summary –Productionvolumein3Q25affectedbyunfavourable weather–21 Oct 2025(link)2.YancoalAustralia–Weak earningsbut largely anticipated; Expect animprovement trend of coalprice–20 Aug 2025 (link)3.YancoalAustralia-Strongproduction volume growth in 2Q25but sales affected by logistical issue–18 Jul 2025 (link) Source:Wind, CMBIGM Source:Wind, CMBIGM Source: Companydata,Argus/McCloskey, GlobalCOAL,CMBIGM Source: Companydata,Argus/McCloskey, GlobalCOAL, CMBIGM Source:Company data,Argus/McCloskey, GlobalCOAL,CMBIGM Source:Company data, CMBIGM estimates Valuation We value YAL by net present value (NPV), calculated by the future cash flow of all thereserves based on their effective mine life.We maintainourBUYratingwith newTP ofHK$38 (previously HK$31). Changesinkey assumptions include:Long-term thermal and metallurgical coal price (startingfrom2029E) ofA$140/t (previously:A$130/t)and A$200/t(unchanged)respectively. Our higher LT thermalcoal price is to reflect the higher-than-expected powerconsumption.Long-term unit cash costinflation of 1% p.a.(unchanged).WACC of7.2% (previously:6.7%):Risk-free rate of4.5% (previously: 4%),basedon10-yearAustralian governmentbond yield;risk premium of6%, 0.5x beta, and10% debt/capital ratio(unchanged).AUD/HKD rate ofHK$5.5, up from HK$5.0 due tothe recentcurrency appreciation. Disclosures& Disclaimers Analyst CertificationThe research analyst who is primary responsible for the content of this research report, in whole or in part, certifies thatwith respect to the securities orissuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject securities or issuer; and (2)no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by that analyst in this report.Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong Kong Securities and Futures Commission) (1) have dealtin or traded in the stock(s) covered in this research report within 30 calendar days prior to the date of issue of this report; (2) willdeal in or trade in the stock(s) covered in this research report 3 business days after the date of issue of this report; (3) serve as an officer of any of the HongKong listed companies