Main points of investment:
Coverage for the first time, giving a "overweight" rating. The price of coking coal has risen sharply, the profit of Huajin of China Coal Company has increased significantly, and the main business of coking has remained sound and profits have returned to the normal level. We expect the company to achieve a net profit of 37.08,48.44 and 4.858 billion yuan in 2021-2023, with EPS of 1.45,1.89,1.90 yuan respectively. Cover for the first time, give the target price 9.81 yuan, "increase" rating.
Different from the view of the market: participation in core coking coal assets will be valued again. Although the company completed asset restructuring in 2018 to acquire a 49% stake in China Coal Huajin, the market's understanding of the company still stays at the traditional coking business level. The company made a net profit of 1.375 billion (+ 206%) in the first half of 2021, of which Q2 returned 924 million (month-on-month ratio + 105%). The core reason for the higher-than-expected performance was that Q2 owned 49% equity in China Coal Huajin contributed 760 million of the investment income (month-on-month ratio + 129%). Coking coal prices have doubled since the beginning of the year, profits in the second half of the year are expected to accelerate, the market will re-recognize the company's strong profitability.
China Coal Huajin has excellent quality and long-term growth. The company paid 4.892 billion yuan in 2018 to buy 49% of Huajin's stake in Shanxi Coking Group, which has brought a cumulative investment income of 5.16 billion yuan since the acquisition in 2018, accounting for 115% of the company's parent profit in the same period. China Coal Huajin has a production capacity of 10.2 million tons (equity 8.73 million tons) and 4 million tons under construction is expected to be put into production in 2024. the main products are national scarce high-quality lean coal and anthracite. The sales price of China Coal Huajin has risen with the market, with a net interest rate of 42.4% in the first half of 2021, far ahead of the industry average.
The main coking industry is improving, and the chemical industry will be incremental in the future. The company has a coke production capacity of 3.546 million tons. With the recovery of the prosperity of the coking industry, the profit of the coke business has returned to the normal level. Shanjiao Feihong, a holding subsidiary, is building a 600000-ton coal-to-olefin project, which is estimated to contribute 810 million to the increase in long-term net profit.
Risk tips. 1. Iron and steel production will be reduced more than expected; 2. Let go of imported coal; 3. The macro economy is not as good as expected.