JSW – JSW Production Volumes Miss Targets In Q4 2019
JSW missed its production targets for Q4 2019, reporting volumes well below the expectations of analysts and its own guidance. Total mine output for the period came out at 3.9 million tonnes against a forecast of 4.2mmt, and as a consequence the full-year volume at 14.8mmt fell short of the 15+mmt target. o our disappointment, the share of coking coal in the fourth-quarter production mix was only 66%, less than the 70% anticipated by us. The end-of-year total coal inventory leftover at December 2019 amounted to 1.8mmt, an increase of 200k+ tonnes relative to September despite plans to keep stockpiles stable. When it comes to sales, the effective sales prices for coking coal and coke achieved in Q4 2019 were 10% and 6% below their respective market benchmarks. Based on weaker-than-expected production figures, we are forced to cut our 2019 Q4 EBITDA estimate for JSW to assume an operating loss of PLN 45m versus positive EBITDA of +PLN 200m anticipated initially. Furthermore, we predict that after continued depletion the cash holdings of JSW dropped more than expected to an estimated PLN 1.3bn (PLN 11/share) at December 2019 (vs. PLN 1.9bn estimated earlier). After further adjusting our FY2019 and FY2020 earnings estimates to reflect weak production, most notably of coking coal, combined with high inventory, we downgrade JSW from buy to hold with the price target cut from PLN 28.04 to PLN 23.32 per share.
Jastrzebska Spolka Weglowa is a producer of type 35 coking coal (“orthocoking coal” according to Polish Standard). The main line of Co.'s business is also the mining and sales of steam coal. Co. is also central for selling all coal derivative products, i.e. coke and hydrocarbons produced by coking plants owned by the JSW S.A. Capital Group. The mining area is located in the Upper Silesian Coal Basin. The principal clients for Co.'s products are located primarily in Poland, Germany, Austria, the Czech Republic, Slovakia, and also India and Brazil.
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