CICC has released a research report stating that, taking into account an upward revision to coal price assumptions, it has raised Yancoal Australia's (03668) 2026 earnings forecast by 12% to AUD 560 million, while keeping its 2027 earnings forecast essentially unchanged. Considering the valuation rollover, the bank maintains its "Outperform" rating and HK$39.00 target price, corresponding to a 2027 forecast P/E of 10.5x, implying 19% upside from the current share price. The bank believes that as production at the Moolarben coal mine gradually recovers, the company's overall production and sales are expected to increase, and combined with seaborne thermal coal prices remaining elevated, the simultaneous rise in volumes and prices is expected to drive the release of the company's earnings leverage.
The main points from CICC are as follows:
Company update
On October 20, Yancoal Australia released its third-quarter 2026 operating report.
Coal production and sales missed expectations, while selling prices rose
On the production side, in the third quarter of 2026, the company's attributable saleable coal production was approximately 9.4 million tonnes, up 2% year-on-year and down 13% quarter-on-quarter. The sequential decline in production was mainly due to the longwall move at the Moolarben coal mine. The company said in its operating report that the new longwall face was put into production in September, which the bank believes will help the company's production and sales recover in the fourth quarter.
On the sales side, in the third quarter, the company's attributable sales of self-produced coal were 9 million tonnes, down 16% year-on-year and down 23% quarter-on-quarter. Among this, thermal coal sales fell 16% year-on-year and 23% quarter-on-quarter; metallurgical coal sales also fell 16% year-on-year and 23% quarter-on-quarter.
On the pricing side, in the third quarter, the company's blended average selling price for self-produced coal was AUD 170 per tonne, up 21% year-on-year and up 6% quarter-on-quarter. Among this, the thermal coal selling price was AUD 160 per tonne, up 23% year-on-year and up 7% quarter-on-quarter; the metallurgical coal selling price was AUD 229 per tonne, up 17% year-on-year and up 5% quarter-on-quarter.
On the cash side, excluding cash outflows for interim dividends and the Kestrel coal mine acquisition, the company's cash balance in the third quarter increased by AUD 340 million compared with the previous quarter.
The company kept its annual production, cost and capital expenditure guidance unchanged. The company expects attributable production may be in the upper half of the guidance range of 36.5 million to 40.5 million tonnes, cash operating costs may be at the upper limit of the guidance range of AUD 90 to 98 per tonne, and capital expenditure within the range of AUD 600 million to 750 million.
Rising volumes and prices may unlock the company's earnings leverage
As of mid-October, the Newcastle thermal coal price was close to this year's high, while the API5 thermal coal price hit a new high since May 2023. The bank judges that seaborne thermal coal prices in the fourth quarter may remain elevated against the backdrop of record-high natural gas prices and stronger coal-fired power demand. At the same time, as production at the Moolarben coal mine gradually recovers, the bank believes the company's overall production and sales are expected to increase, and the simultaneous rise in volumes and prices is expected to drive the release of the company's earnings leverage.
Focus on operating performance after the Kestrel coal mine delivery and consolidation
In early October, the company completed the asset delivery of the Kestrel coal mine. The bank will continue to monitor the company's progress in integrating this asset, as well as its production scheduling arrangements and cost control.
Earnings forecast and valuation
Taking into account an upward revision to coal price assumptions, the bank has raised the company's 2026 earnings forecast by 12% to AUD 560 million, while keeping its 2027 earnings forecast essentially unchanged. The company's current share price corresponds to forecast P/E ratios of 13.9x for 2026 and 8.8x for 2027 on the Hong Kong market. Considering the valuation rollover, the bank maintains its "Outperform" rating and HK$39.00 target price, corresponding to a 2027 forecast P/E of 10.5x, implying 19% upside from the current share price.
Risk warnings
Costs increasing more than expected; coal prices falling more than expected.
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