What’s New

3Q12 net profit of the Company decreased 28.6% yoy to RMB1.90bn.

However, 9M12 net profit has already achieved 86% of our originalFY12 estimated net profit.

CatalystWorse-than-expected ASPs. 3Q12 domestic ASPs ofself-produced spot coal and long-term contract coal down 26.3%and increased 8.3% yoy, respectively. Both ASPs are lower than ouroriginal assumptions.

Increased sales of long-term contract coal to maintain profitability.

Sales volume of long-term contact coal was in a downtrend whenASP of spot coal is higher than that of long-term contact coal.

Nonetheless, in 3Q12, its yoy growth returned to positive while spotsales ratio dropped from 55.9% in 1H12 to 46.2%.

Better-than-expected cost control. 3Q12 commercial coal unitproduction cost down 5.4% yoy or 8.2% as compare to that of FY11.

Raw material costs, labour costs, outsourcing mine engineering feeand other costs recorded qoq decrease.

Finance cost continues to rise. Finance cost in 3Q12increased 158.7% to RMB208.7mn. As the Companyissued RMB 5bn medium-term notes with a 5.12% coupon rate on20Sep12, we expect finance cost will be even higher in 4Q12.

Valuation

We revise up FY12 and FY13 earnings forecast to factor in: 1)lower-than-expected spot coal and contract ASPs; 2)higher-than-expected coal sales volume; 3) lower-than-expected perunit coal production cost; and 4) higher finance cost. Base on our newFY12 EPS, we revise up TP to HK$9.20, base on FY12 target PER 11x. Maintain BUY.

Our View

The decrease in per unit coal production cost is a positive surprise. Weremain cautiously optimistic on coal price and share price of theCounter, as we expect weaker supply and stronger demand forthermal coal in 4Q12 due to QHD railway maintenance and lesserhydropower in the quarter.

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