China Coal Energy's first-half profit plunges 76pc

First-half net earnings of listed unit of the mainland's No2 producer hit by falling prices

PUBLISHED : Monday, 18 August, 2014, 11:09am
UPDATED : Tuesday, 19 August, 2014, 5:24am

Shares of China Coal Energy, the listed unit of the mainland's second-largest coal producer, fell as much as 2.5 per cent after its first-half net profit slumped 75.8 per cent year on year to 780 million yuan (HK$983 million).

The firm's shares traded as low as HK$4.70 yesterday, before closing 1.2 per cent lower at HK$4.76. The Hang Seng Index closed flat.

Although the dismal result was due mostly to a sharper than expected fall in coal prices, management expected they will likely rebound late next month, adding they are aiming for controllable unit production cost to fall in the second half by at least the 5.4 per cent achieved in the first half.

China Coal's second-quarter net profit dived 87.8 per cent year on year to 166.43 million yuan, which Barclays' analysts said in a report was 70 per cent lower than their estimate.

"Continuing investment in coal-to-chemical [projects], a sharp increase in net debt and potential [rise] in interest cost, which is currently masked by the interest capitalisation, should outweigh any relief the company could see from a short-term pick-up in coal prices," the Barclays report said.

China Coal's first-half profit was mostly dragged down by a 12.4 per year-on-year fall in the average selling price of coal from its mines, as well as a 150 per cent jump in finance costs to 1.14 billion yuan.

The benchmark Bohai Bay Rim price has fallen 23.8 per cent since the middle of this month from the start of the year, which was "steeper than everybody's expectation", said Wu Jun, president of China Coal Coal Sales Centre. "We expect coal prices to pick up in late third quarter or early fourth quarter."

He said Beijing's "micro-economic" stimulus has already helped demand, and its push for the industry to cut output by 10 per cent will relieve oversupply.

The company and the nation's largest producer Shenhua Group aim to cut this year's output by 10 per cent from their targets set early this year.

Zhu Wenliang, general manager of infrastructure construction, expects the firm's capital spending on capacity expansion to reach 90 per cent of the 266 billion yuan target set earlier.