occurrences

The company released its 2016 annual report. During the reporting period, it achieved operating income of 5.18 billion yuan, an increase of 12.04% over the previous year; net profit of Guimo was 1.96 billion yuan, with losses for two consecutive years; net profit of -1.68 billion yuan after deduction; and basic earnings per share - 0.82 billion yuan. On March 24, trading of the company's stock will be suspended for one day, and the company's stock abbreviation will be changed to “*ST Dayou”.

Brief review

Production fell 20%, and the company's average coal sales price did not increase much

In 2016, the company's main coal mining revenue was 3,998 billion yuan, accounting for 77% of total revenue. Affected by the industry's 276 production limit policy and the company's Gengcun mine discontinuation and rectification, during the reporting period, the company achieved production of 12.67 million tons of raw coal, a year-on-year decrease of 20%; commercial coal sales were 16.13 million tons, an increase of 11.5% over the previous year. Coal prices bottomed out in 2016, but the price increase on the company's sales side was not significant. It is estimated that the overall price of coal was 248 yuan/ton, an increase of 22 yuan/ton over the previous year; the gross profit margin of the coal sector was 6.5%, up slightly from 2.8% last year.

Volume and price rose sharply in the second half of the year, and gross profit per ton of coal stopped losing 47 yuan

Comparing vertically, the company achieved a sharp rise in volume and price in the second half of the year. In the second half of 2016, raw coal production was 6.91 million tons, an increase of 20% over the previous month; commercial coal sales were 10.33 million tons, an increase of 78% over the previous month.

It is estimated that the overall price of coal is 275 yuan/ton, up 38% from 200 yuan/ton in the first half of the year.

The gross profit per ton of coal was 47 yuan/ton, a significant improvement compared to the first half of the year - 39 yuan/ton.

Financial expenses increased by 432%, leading to a slight increase in period expenses

In 2016, the company's total expenses during the period were 1,069 million yuan, an increase of 6.29% over the previous year, mainly due to a large increase in financial expenses. During the reporting period, the company's financial expenses were 175 million yuan, an increase of 432% over the previous year. On the one hand, interest expenses and financing fees for new loans increased in the current period. Furthermore, the Mengjin coal mine construction project reached its intended use, and capitalization of interest expenses was stopped during the current period.

Accidental mines and the shutdown of loss-making mines caused a loss of 290 million yuan during the current shutdown of some of the company's coal mines in 2016. The main reason was that the company's branch Qianqiu Coal Mine and Gengcun Coal Mine stopped production due to the accident, and the Yangcun coal mine decided to shut down work for a long time due to resource depletion and cost inversion. On March 27, 2014, a major ground pressure accident occurred at the Qianqiu coal mine, a branch of the company. Related expenses of 170 million yuan occurred in 2016, and production was resumed as of the reporting date; on December 22, 2015, an impact ground pressure accident occurred at the Gengcun coal mine, causing 2 deaths, 4 injuries, and production was suspended. Related expenses of 63 million yuan occurred in 2016. As of the reporting date, the Gengcun coal mine had resumed production; due to falling coal prices, Yangcun coal mine had stopped production for a long time since 2015. After coal prices rose in 2016 Production resumed in May of this year, and related expenses of 57 million yuan were incurred in 2016.

“*ST” takes the lead, and the company faces the risk of suspension of listing

The company's net profit was negative for two consecutive years in 2015 and 2016. According to the relevant exchange regulations, the company's stock trading was “delisting risk warning”, and the stock abbreviation will be changed to “*ST Dayou”; in addition, on October 13, 2013, the company was investigated by the Securities Regulatory Commission. If the company was finally determined by the China Securities Regulatory Commission to have committed a major information disclosure violation due to the investigation, the company's shares will be subject to a delisting risk warning and the listing will be suspended. Up to now, the China Securities Regulatory Commission has not issued an official penalty notice.

It is expected that Henan will change to the company to effectively reduce its burden and give it a “neutral” rating

Since this year, Henan's national reform has progressed gradually. At the same time, in order to improve the company's performance and turn losses into profits, the company will continue to actively push forward the “removal of production capacity” and “three for one industry” reform work in the future, effectively reduce the burden on enterprises, comprehensively carry out special management of loss sources, and take targeted measures to stop the “bleeding points” of enterprises.

We forecast the company's 2017 and 2018 EPS to be 0.07 and 0.04 respectively, giving it a “neutral” rating.