Shanxi Coking Coal Group's coking listing platform. By the end of the first half of 2021, the company's controlling shareholder, Shanxi Coking Group (a wholly owned subsidiary of Shanxi Coking Coal Group), held 51.14% of the shares, and the actual controller of the company was the Shanxi State-owned assets Supervision and Administration Commission.

By the end of 2020, the company has an annual production capacity of 3.546 million tons of coke, 300000 tons of coal tar processing, 357400 tons of methanol, 100000 tons of crude benzene refining and 80,000 tons of carbon black and other production facilities.

The company publishes its 2021 semi-annual report. The main financial data are as follows:

In the first half of 2021, the company realized operating income of 5.029 billion yuan, an increase of 61.38% over the same period last year; net profit attributable to shareholders of listed companies was 1.375 billion yuan, an increase of 206.16% over the same period last year; net profit after deducting non-return was 1.369 billion yuan, an increase of 208.13% over the same period last year; net cash flow from operating activities was 502 million yuan (+ 817.71%) and earnings per share was 0.5368 (+ 206.22%).

In the second quarter of 2021, the company achieved operating income of 2.686 billion yuan, up 50% from the same period last year and 15% from the previous year; the net profit of shareholders belonging to the parent company was 924 million yuan, up 165% from the same period last year and 105% from the previous year; and the net profit after deducting non-profit was 920 million yuan, up 166% from the same period last year and 105% from the previous year.

Coke business: Coke production and sales increased by 14%, unit selling price increased by 40%, and coal purchase price increased by 20%.

In the first half of 2021, coke production and sales increased as a whole, with coke output of 1.792 million tons, an increase of 217000 tons (+ 13.78%) over the same period last year. Coke sales were 1.796 million tons, an increase of 227000 tons (+ 14.47%) over the same period last year.

During the reporting period, the operating income of coke business was 3.91 billion yuan, an increase of 1.767 billion yuan (+ 82.45%) over the same period last year, and the selling price of coke unit was 2064 yuan / ton, an increase of 584 yuan / ton (+ 40%) over the same period last year. The amount of coal purchased was 2.284 million tons, an increase of 300000 tons (+ 14.9%) over the same period last year, and the average purchase price was 1304 yuan / ton (+ 20%). Coal chemical business: the volume and prices of major chemical products rose simultaneously, and the operating income of the chemical business was 1.103 billion yuan, an increase of 1. 5% over the same period last year.

4.1 billion yuan (+ 14.72%).

In the first half of the year, methanol production was 132000 tons, up 26000 tons (+ 24.5%) over the same period last year, and methanol sales were 133000 tons, up 32000 tons (+ 31.7%) from the same period last year. The unit price of methanol is 1863 yuan / ton, up 538 yuan / ton (+ 40%) compared with the same period last year.

The output of carbon black was 43000 tons, up 4000 tons from the same period last year (+ 10.3%), and the sales volume of carbon black was 43000 tons, up 3000 tons (+ 7.5%) from the same period last year. The price of carbon black unit is 5934 yuan / ton, up 2605 yuan / ton (+ 78%) compared with the same period last year.

The output of pure benzene was 34000 tons, down 3000 tons (- 8.1%) from the same period last year; the sales volume of pure benzene was 35000 tons, down 2000 tons (- 5.4%) from the same period last year. The unit price of pure benzene was 5419 yuan / ton, up 1923 yuan / ton (+ 55%) compared with the same period last year.

Asphalt production was 47000 tons, up 15000 tons from the same period last year (+ 46.9%); asphalt sales were 51000 tons, up 17000 tons from the same period last year (+ 50.0%). The price of asphalt unit is 3304 yuan / ton, up 1359 yuan / ton (+ 70%) compared with the same period last year.

Industrial naphthalene production was 18000 tons, up 5000 tons (+ 38.5%) over the same period last year; industrial naphthalene sales were 18000 tons, up 5000 tons (+ 38.5%) over the same period last year. The unit price of industrial naphthalene is 3163 yuan / ton, up 171yuan / ton compared with the same period last year. (+ 6% China Coal Huajin makes a significant contribution to the company's net profit, and the performance of this coking coal asset is flexible.

In 2018, the company acquired a 49% stake in China Coal Huajin held by Shanxi Coking Group for 6.688 billion yuan. China Coal Huajin is mainly engaged in coal and power production (revenue accounts for 90% of 10%), with a total coal design capacity of 14.2 million tons (including a total production capacity of 11.2 million tons of coking coal in the three mines Wangjialing, Hanzui Coal Mine and Huanning Coal Mine, and 8.73 million tons of equity production capacity). The main coal products are national scarce, high-quality lean coal, with stable and strong sustainable profitability. During the reporting period, China Coal Huajin achieved an operating income of 6.502 billion yuan and a net profit of 2.292 billion yuan. The company confirmed that the investment income of China Coal Huajin was 1.09 billion yuan, accounting for 80% of the company's operating profit.

The investment income of Shanxi Coking Company's Q1/Q2 is 330.60 million yuan respectively, an increase of 430 million yuan quarter on quarter. It is estimated that Shanxi Coking Company has a quarterly equity production capacity of 1.07 million tons of medium Coal Huajin (= 873 tons 0.49), then the net profit of Q1 and Q2 tons of coal is 308 yuan / ton and 710 yuan / ton respectively, the sales mechanism is more flexible so the profitability is very strong. Consider Rizhao Port: the market price of lean coal produced in Shanxi has risen by about 400 yuan / ton compared with Q2 since the third quarter (from the beginning of July to the end of August). The current coking coal price is easy to rise and difficult to fall, and the investment income of Q3 company is expected to rise further.

The supply and demand of the coking coal industry is tight, the inventory is low, and the price continues to rise.

From the first half of 2021, the demand growth rate of the coking coal industry is 2.7%, and the supply growth rate is-1.5%, a difference of 4.2 percentage points. The negative growth rate of supply is mainly due to the limited import volume of Mongolia and Australia.

As of August 27, 2021, the inventory of coking coal in domestic sample steel mills was 6.8 million tons, 2.02 million tons lower than at the beginning of the year and 840000 tons lower than at the beginning of the year; the inventory of coking coal in domestic sample coking plants was 6.79 million tons and 14.3 days less than that at the beginning of the year, 3.23 million tons and 6.5days lower than at the beginning of the year, 1.13 million tons and 1.13 million days lower than at the beginning of the year.

As of August 30, 2021, the price of main coking coal in Jingtang Port was 3850 yuan / ton, up 2200 yuan / ton from the beginning of the year and 2440 yuan / ton over the same period last year.

Profit forecast and valuation: we predict that the net profit attributed to the parent company from 2021 to 2023 will be 31.2,32.0 and 3.29 billion yuan respectively, with year-on-year growth of + 185%, + 3% and + 3%, equivalent to 1.22% and 1% EPS respectively.

25,1.28 yuan per share, the current share price of 7.49 yuan corresponds to PE 6.1,6.0,5.8 times respectively. Considering the continued high prosperity of the coking coal industry, China Coal Huajin's performance flexibility is large, the company's valuation is low, and the company is covered for the first time, giving the company a "buy".

Rating.

Risk tips: 1) the risk that economic growth is lower than expected may lead to a decline in the prices of the company's main products, such as coke, coking coal and other chemical products. 2) the risk of production safety, the coke industry in which the company is located and the coal mines in which the company participates are all high-risk industries, and there are risks in production safety. 3) the risk of environmental protection production restriction, the coke industry the company is in is a high energy consumption and high pollution industry. In recent years, environmental protection production restriction has become the norm. If the environmental protection production restriction is strengthened, the company's production may be affected. 4) the public data used in the research report may be at risk of lagging behind or not updating in a timely manner.