Thanks to falling coal prices, net profit rose 118 per cent year-on-year. Benefiting from the commissioning of Dandong Jinshan Thermal Power, the company's operating income in the first half of 2013 was 2.051 billion yuan, an increase of 25% over the same period last year; the net profit belonging to shareholders of the listed company was 112 million yuan, up 118% from the same period last year; and realized earnings per share of 0.33 yuan. The sharp increase in net profit is mainly due to the decline in coal-fired costs; financial expenses increased by 38% compared with the same period last year, mainly due to the cessation of interest capitalization in Dandong Jinshan Power Plant. The net operating cash flow benefited from the improvement in the profitability of the power business, an increase of about 230 million yuan over the same period last year.

Benefiting from the decline in coal prices, the profitability of the power business has increased significantly. The company's online electricity consumption in the first half of 2013 was 5.5 billion kilowatt-hours, an increase of 22.4% over the same period last year. The income of the power generation business was 1.844 billion yuan, and the gross profit margin increased to 31.2%, an increase of 8.5% over the same period last year; the heating business was 191 million yuan, with a gross profit margin of 4.4%, an increase of 15.7% over the same period last year. The profits of its power plants all showed continuous improvement, of which the equity profits of Baiyinhua Power Plant, Fuxin Jinshan Power Plant and Sujiatun Power Plant were 0.63,0.26 and 32 million yuan, and the newly put into operation of Dandong Jinshan Thermal Power contributed 6.27 million yuan. In terms of investment income, Shenyang China Resources contributed a profit of 30 million yuan, an increase of 20 million yuan over the same period last year, while Baiyinhua Haizhou Coal Mine contributed a profit of 24 million yuan, down 24 million yuan from the same period last year.

High-quality reserve projects are sufficient, and additional issuance relieves financial pressure. The company's planned and construction projects include Baiyinhua Jinshan Phase II (266 million kilowatts, Kengkou Power Station), Sujiatun Jinshan Phase II (2.35 million kilowatts, main thermoelectric units, high utilization hours) mixed with sludge thermal power, Fuxin 250000 kilowatt wind power project and other profitable power projects, with a total installed capacity of more than 2.2 million kilowatts, it can be seen that the company has remarkable medium-and long-term growth. In addition, the additional issuance of the company was approved by the Securities and Futures Commission in July, or started within the year. The company adjusts the reserve price of the IPO to 6.26 yuan and plans to issue 150 million shares. The reported asset-liability ratio of the company is 85.6%, which is still at a high level. It is expected that the completion of the additional offering will effectively alleviate the financial pressure of the company and be conducive to the long-term development of the company.

Rating: increase holdings. We estimate that the EPS of the company from 2013 to 2015 is 0.80,0.86,1.03 yuan respectively, and the corresponding price-to-earnings ratio is 8.4,7.8,6.5 times. The factors that promote the rapid improvement of the company's profits are mainly from the continuous improvement of the profits of the electric power business driven by the downward price of coal. The company mainly focuses on thermoelectric units, and we expect that the northeast region will start the urban thermal industry reform in the later period of the 12th five-year Plan, and the profitability of the company's thermoelectric units will be further improved. At the same time, considering the rich reserve projects and outstanding growth of the company, we think it is more appropriate to give the company 8-10 times PE in 2013, corresponding to a reasonable share price of 6.78.0 yuan. Maintain the company's "overweight" rating.

Risk tips: large fluctuations in coal prices lead to rapid changes in costs; the decline in regional electricity demand leads to less than expected hours of unit utilization; and the construction progress of reserve projects is slow.