Events:

Due to the impact of flooding, the board of directors recently examined and passed a motion to adjust the technical transformation plan of Fengcheng Qujiang Coal Mine. After the adjustment of the technical transformation scheme, the estimated investment of the project has been adjusted from the original 320 million yuan to 403 million yuan, and the full completion time of the technical transformation is expected to be June 2018, which is about 6 months later than the original plan.

Comments:

1. The production of Qujiang Mine has been delayed, and the profit in 2018 has been weakened again.

After the company closed 11 coal mines in the past two years, the current production capacity is only 2.98 million tons / year, of which Qujiang Coal Mine has an approved production capacity of 810,000 tons / year, accounting for 27%, which is the company's main mine. Due to the technical transformation of Qujiang Coal Mine this year, the company is expected to produce only 2.2 million tons of raw coal for the whole year, with a capacity utilization rate of less than 75 per cent. With the adjustment of the technical transformation plan, the production time of Qujiang Mine has been delayed, coupled with the planned closure of Qingshan Coal Mine in 2018 (390,000 tons / year), raw coal production is expected to remain low next year, about 2.3 million tons.

At present, the operation of the company is not very satisfactory, due to the technical transformation of Qujiang Coal Mine, the coal business is losing money. According to the data disclosed by the China News, the net loss per ton of coal is estimated to be 17 yuan. Qujiang Mine mainly produces clean coal (about 550,000 tons / year). Under the current coal price, the net profit per ton of coal can reach 200 yuan, and it is expected to contribute more than 100 million of the net profit every year. The technical reform plan will significantly reduce the company's profitability in 2018 and is cautiously expected to maintain only a small profit.

2. Maintain the "prudent recommendation-A" investment rating with the risk of being exposed to * ST

The company still lost 100 million in the first three quarters. Qingshan Mine has started a closure plan, and there is still a large amount of asset impairment to be deducted. It is prudently expected that the company will lose money for two consecutive years, and there is a risk of being ST. The main mine delayed production due to safety factors, and the company's profitability was further weakened next year. EPS is expected to be-0.17,0.01,0.09 yuan per share in 2017-2019, maintaining the "prudent recommendation-A" rating.

Risk hint: a sharp correction in coal prices; the progress of mine technical transformation is not as expected; capacity removal plan leads to large asset impairment.