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Public company info - Feishang Anthracite Resources Limited , 01738.HK
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Feishang Anthracite Resources Limited, 01738.HK - Company Profile
Chairman HAN Weibing
Share Issued (share) 1,381,000,000
Par Currency Hong Kong Dollar
Par Value 0.001
Industry Coal
Corporate Profile Business Summary: The Group were engaged in the construction and development of anthracite coal mines, extraction and sale of anthracite coal, and trading of anthracite coal in the People’s Republic of China (the “PRC”). Performance for the year: Revenue from continuing operations down by approximately 6.8% to approximately CNY1,149.7 million Gross profit from continuing operations down by approximately 51.7% to approximately CNY317.1 million Loss attributable to owners of the parent from continuing operations for the year ended 31 December 2019 was approximately CNY97.1 million, compared to a profit of approximately CNY207.2 million for the prior year Basic loss per share from continuing operations was approximately CNY0.07 Business Review During 2019, the Chinese economy further slowed down and the substitution effect of clean energy, especially hydropower, for thermal power was unexpectedly strong. The growth rates of both overall power generation and overall coal consumption continued to follow a declining trend. There were no demand highlights from among the other major coal-consuming industries. On the supply side, as massive overall capacity reduction was mostly completed by the end of 2018, and the release of high-quality production capacity started to accelerate in 2019, overall coal supply in 2019 steadily increased, especially in the second half of the year. Meanwhile, coal import increased sharply due to lower prices associated with imported coal. Demand and supply in the coal market gradually changed from being roughly balanced to excess supply, exerting downward pressure on the price of coal. As part of the supply-side reform in the coal industry, the Group greatly expanded and upgraded its production capacity. However, during 2019, the Group also faced intensifying competition from both upgraded local producers and high-quality products from northern China. Although the Group achieved further growth in production and sales volume, it suffered from a large decline in the average selling price of its main products and overall profitability deteriorated. This large decline in average selling price was attributable not only to a slowing market and decreasing market price, but also, and probably more, to a temporary deterioration in the quality of the Group’s coal products as a result of geological complexities of current mining faces. Meanwhile, due to frequent coal mine safety incidents in northern China as well as within Guizhou province where the Group’s operations situated, safety policies and supervision remained extremely tight nation-wide. The Group has as usual remained highly vigilant on mine safety and has taken various precautions to ensure production safety at its coal mines. The Group, having regard to the importance of product quality in creating sustainable advantage in future competition, has enhanced and will continue to enhance coal quality management. That included further investment in the expansion of coal washing capacity, setting up coal quality control teams and formulating coal quality control policies. Specifically, two newly invested large coal washing plants each with annual production capacity of 0.6 million tons are expected to be completed and put into production in April and July 2020, which will greatly improve the Group’s coal washing capacity and its ability to control product quality. Quality control and safety management is core to production management and is embraced throughout the entire production process. The Group believes that, with these measures in place and when the geological conditions improve, its production capacity will be released and product quality will also improve. The high sieving systems and coal washing plants will allow the Group to perform coal screening, coal washing and efficient coal blending and supply customers with customised coal products of controllable quality. During the year, the Group also continued to expand production capacity and output, bringing about economies of scale and opportunities for better product diversification and market segmentation with increased profitability. However, lower coal quality in 2019 hampered the Group’s ability to diversify its products, resulting in a disproportionate amount of coal sold as thermal coal to power plants, and this significantly affected the Group’s overall profitability. When coal quality stabilises, the Group will continue to strengthen the brand name of Feishang Anthracite and retain and further penetrate the high-end market. In addition, the Group has continued to explore and optimise coal mine design and actively apply new technologies and equipment in mine construction to improve operational efficiency, enhance production safety and reduce capital commitment and production cost. The Group has also made solid progress in promoting refined management and cost control to ensure that all investments and expenses were necessary and all mining, production and marketing activities were cost-effective. As a result of the above internal and external complications, the Group recorded consolidated loss attributable to owners of the parent from continuing operations of approximately CNY97.1 million for the year ended 31 December 2019, compared to a profit of approximately CNY207.2 million for the prior year. Prospects: In traditional industry cycle analysis, market demand is the leading factor in price determination, and the expansion and contraction of market supply follow and lag behind changes in demand. In this process where market equilibria are broken and new equilibria are reached from time to time, industries and prices exhibit cyclical fluctuations. Following the completion of massive overall capacity reduction in the coal industry, the focus of supply-side reform since 2019 has fully switched to encouraging steady release of high-quality production capacity. The pricing mechanism in the coal industry should revert from a period of supply-led mechanism due to supply-side intervention back to normal commodity cycle and demand-led mechanism. As the release of high-quality production capacity accelerated since mid-2019, and investment in the coal industry also notably accelerated, newly constructed and released production capacity will steadily increase market supply and create intensified market competition. It is expected that the increase of production capacity will stabilise in 2021. Meanwhile, the price advantage of imported coal is expected to peter out and import regulations will continue to serve to stabilise the domestic coal market. On the demand side, apart from existing internal and external challenges and risk factors, the biggest Black Swan event in early 2020 was the outbreak of the novel coronavirus (“COVID-19”) in China and an increasing number of other countries. A slew of unprecedented measures were taken throughout China to contain the COVID-19. That included the complete lockdown of a dozen of the most populated cities in Hubei, including its capital Wuhan. The Spring Festival holiday period was also extended for a week or longer, all at the cost of economic growth. China’s economy especially in the first quarter of 2020 will inevitably be heavily and adversely affected, and impacts will most likely persist into the second quarter and beyond. GDP growth, especially the growth of industrial production and the tertiary sector, is expected to further slow down than previously forecasted, which will inevitably depress overall electricity consumption as well as coal demand. Nevertheless, the Chinese government has promptly responded and will continue to respond with targeted and highly supportive fiscal and monetary stabilising policies to mitigate the risk. Meanwhile, the substitution effect of hydropower generation is expected to weaken, and thus the growth of the thermal power sector should stabilise and recover somewhat, lending support to coal demand. Also, the chemical, iron and steel and building materials industries will likely remain stable. Overall, coal demand in the near future is expected to be relatively weak but still moderately supported. With steady increase of new production capacity and fading away of the effects of supply-side intervention, supply will likely be abundant relative to demand, so the price of coal is expected to face further downward pressure. Nevertheless, environmental rules and safety supervision are expected to remain tight. The expansion of supply should be mild and steady, and the increasingly concentrated supply will make production easier to control and adjust, so demand and supply relationship in the coal market is expected to remain healthy in the near future, and the coal price will slowly decrease while fluctuating within a reasonable range. In the future, the degree of coal industry concentration is expected to further increase. Newly released high-quality production capacity is expected to mainly concentrate in north-western China, whereas the elimination of backward production facilities largely took place in south-western China. However, the transportation capacity of coal is expected to further expand, which will make it easier for high-quality coal products from northern China to enter the south-western market. Market competition in Guizhou province, especially among high-quality products, will further intensify. Nevertheless, the economic development in south-western China is relatively fast, and Guizhou province is an important base of China’s west-to-east electricity transmission project and also a target province of China’s transportation infrastructure development strategy, so coal demand in Guizhou province should be well supported in the long term. In order to succeed in future competition, the Group intends to actively focus on coal quality management and product mix adjustment to improve the competitiveness and average selling price of its coal products. The Group will also continue to expand production output in pursuit of economies of scale and opportunities for better product diversification, but the outbreak of COVID-19 is expected to affect production, especially in the first quarter of 2020, through travel restrictions which will result in inadequate mine workers and under-capacity operation. Meanwhile, the Group will, during the current period of a weak market and temporary deterioration in coal quality caused by geological complexities of current mining faces, continue to make strategic preparations for concentrated mining of high-quality coal in the coming years, in order to ensure that the Group enjoys an advantageous position in the future market competition of high-quality coal. The Group is committed to its business strategy through vigorously i) promoting the expansion of production capacity, coal washing facilities and transportation system, ii) realising comprehensive mining mechanisation and intelligent production management, iii) strengthening production safety management and environmental protection efforts and, most importantly, iv) supplying customers with diversified and customised coal products to retain high-quality customers and penetrate the surrounding coal market. The status of coal as the primary source of energy in China is expected to remain unchanged for a considerable length of time in the future. It is widely used in thermal power generation, iron and steel production, building materials production, and the chemical industry. Although clean energy is currently developing fast and taking up a bigger proportion of overall power generation, there are limits to this growth due to reliability, economic efficiency and availability of economically viable resources. Therefore the Company is cautiously positive about the coal industry in the longer term. The Company will also consider other potential business projects that can provide its shareholders with promising returns and benefit the Group as a whole as and when suitable opportunities arise.

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