Yancoal Australia Limited

Section 1: Company Overview and Fundamentals Insights

1.1 Company Overview

Yancoal Australia Limited (ASX: YAL) is an Australia-based company, which is engaged in producing and developing open-cut and underground coal mines in the global seaborne market. The company operates a diversified portfolio of assets consisting of both large-scale open-cut and underground mines comprising six coal mine complexes in Australia.

 1.2 The Key Positives, Negatives, Investment Highlights, and Risks

1.3 Top 10 Shareholders: The top 10 shareholders together form ~82.34% of the total shareholding. Yankuang Energy Group Co Ltd and Cinda International Hgb Investment (UK) Ltd. are holding a maximum stake in the company at ~62.26% and ~13.74%, respectively.

1.4 Key Metrics: The company has reported an improvement in return on equity to +26.6% in 1HFY22 compared to -2.5% in 1HFY21. Further, YAL reported a high current ratio in 1HFY22, around 3.11x, compared to 1.42x of the industry median. Below is captured the trend of the gross margin and asset turnover ratio:

Section 2: Business Updates, Financial and Operational Highlights

2.1 Recent Updates:

2.2 Results Highlights of 4QFY22: During 4QFY22, the company reported a 102% increase in overall average realised coal price to AUD 422 per tonne as compared to AUD 209 per tonne during 4QFY21.

2.3 Growth Plan: The prospect of better weather conditions could allow YAL to report improved production in each successive quarter of FY23. As per the risk management strategy, the company aims to rebuild inventory levels in advance in order to facilitate the rise in production in later periods because in the last financial year, the event of heavy rain in 4QFY22 led to the loss of production.

2.4 Dividend History: The total dividend paid during FY22 was AUD 1.23 per share. Notably, the company has repaid most of its debt and started FY23 on a good note, with net cash position of around AUD 2.7bn.   

Section 3: Key Risks and Outlook:

Section 4: Stock Recommendation Summary

4.1 Price Performance and Technical Summary

The stock has witnessed a rise of ~5.53% in 1 month and over the last 6 months, it has increased by ~2.56%. The stock has a 52-week low and 52-week high of AUD 3.410 and AUD 7.150, respectively and is currently trading slightly above the average of a 52-week high-low average.

4.2 Fundamental Valuation

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: Past performance is neither an indicator nor a guarantee of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is February 27, 2023. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock.

Resistance: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Resistance 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Resistance 2 may act as the crucial resistance level for the stock.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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