Event: On April 25, 2023, the company released its 2022 annual report and 2023 quarterly report.

In 2022, the company achieved operating income of 24.60 billion yuan, an increase of 15.18% over the previous year; achieved net profit of 2,209 billion yuan, a decrease of 13.05% over the previous year; and achieved net profit of 2,246 million yuan after deducting non-return to the mother, a year-on-year decrease of 22.05%. In the first quarter of 2023, the company's operating income was 5.338 billion yuan, down 13.65% from the previous year; the net profit of the mother was 402 million yuan, down 40.52% from the previous year; net profit after deducting the non-return mother was 389 million yuan, a decrease of 42.16% from the previous year.

Costs supported the rise in coke prices in 2022, and the gross margin of coking declined. By the end of 2022, the company had 7.15 million tons/year of coke production capacity. In 2022, the company's capacity utilization rate reached 75.01%, and coke production was 5.363 million tons, down 4.58% from the previous year; sales were 5.433 million tons, down 5.54% from the previous year. According to the announcement, the unit price of coke was 4,403.74 yuan/ton, an increase of 20.05% over the previous year, and the unit sales cost of coke was 3467.38 yuan/ton, an increase of 35.51% over the previous year. Since the increase in the price of coking coal was greater than the increase in the price of coke, the gross margin of the company's coking business was 20.99%, down 8.99 percentage points from the same period last year.

Earnings growth slowed in 23Q1. According to Wind data, the price of primary metallurgical coke in Taiyuan fell 14.55% year on year to 2458.20 yuan/ton in the first quarter of 2023. During the same period, the average price of Gujiao-2 coking coal was 1352.31 yuan/ton, up 3.30% year on year, with obvious cost support on the raw material side. According to the company's quarterly report, although actual operating costs have declined, since the market price of the main product, coke, fell more than the purchase price of raw materials, the company's profit declined significantly. In 23Q1, the company's gross margin was 20.09%, down 3.95 pct from the previous year; the net interest rate of return to the mother was 7.54%, down 3.41 pct from the previous year.

Hydrogen fuel cell trucks have entered a growth stage, and production and sales have increased dramatically. With the implementation of the country's new energy policy, various local governments actively joined the model urban agglomeration. At the same time, starting in 2022, the company's hydrogen fuel cell trucks entered a growth stage, developing operating scenarios such as mines, steel mills, ports, intercity transportation, etc. in South China, North China, the Bohai Rim, Northwest China, etc., and achieved good results, so production and sales of new energy vehicles increased dramatically.

In 2022, the company produced 741 new energy vehicles, an increase of 23.29% over the previous year; it sold 462 new energy vehicles, an increase of 43.03% over the previous year. Currently, the company's hydrogen energy business is developing rapidly, and the industrial chain is being extended one step at a time. In terms of hydrogen vehicles, in 2022, the company's Qingdao Meijin Hydrogen Technology Park project located in Qingdao's West Coast New Area was fully capped at the end of the year. It is expected to be put into production by mid-2023, with a planned production capacity of 5,000 vehicles; in the downstream industry, by the end of 2022, the company had built and put into operation a total of 17 hydrogen refueling stations.

Investment advice: We expect the company to achieve net profit of 1,679/18.49/1,948 billion yuan in 2023-2025, EPS of 0.39/0.43/0.45 yuan/share respectively, corresponding to PE on April 25, 2023 of 20/19/18 times, respectively. Considering that the cost of coke is under pressure, the rating was lowered to give a “Cautious Recommendation” rating.

Risk warning: The majority shareholders' pledge ratio is high, the decline in coke prices affects profits, the rise in coking coal prices erodes profit margins, the construction of hydrogen energy projects falls short of expectations, and the implementation of hydrogen energy industry policies falls short of expectations.