Key points of investment
Losses were reversed in 2017 results, and mining costs fell 11.76% year over year. The company's revenue in 2017 was 6.834 billion yuan, an increase of 31.91% over the previous year, and the net profit of the mother was 480 million yuan. The year-on-year loss was reversed. EPS was 0.20 yuan, and net profit after deduction was 500 million yuan. It is basically in line with the company's performance forecast, which is also in line with our expectations. The company's mining costs fell 11.76% year-on-year in 2017, mainly due to the concentration of spending in 2016 and the higher base. The profit distribution plan is to distribute 0.61 yuan (tax included) for every 10 shares, for a total of 146 million yuan.
Production resumed growth, the price of thermal coal rose by 52.70%, and self-produced coal contributed more than 80% to revenue.
The company produced its own thermal coal/coking coal of 11.2359 million/3,7253 million tons in 2017, an increase of 16.93%/-15.15% over the previous year; sales were 11.2019 million/4.9942 million tons respectively, an increase of +17.26%/-24.11% over the previous year. The price of a ton of coal was 393.68/292.72 yuan/ton, an increase of +52.70/ +27.24% over the previous year; the cost of a ton of coal was 221.57/211.65 yuan/ton, respectively, an increase of -22.82%/18.33% over the previous year. Revenue from coal trade was 595 million yuan, an increase of 23.68% over the previous year, and the revenue contribution was less than 10%. The company plans to produce and sell 16.85 million tons of commercial coal in 2018, up 12% from actual production in 2017. It plans to achieve operating income of 6.4 billion yuan and total profit of 480 million yuan. We expect the company's average sales price to increase slightly in 2018, and the company's profit target is slightly conservative.
Expense rates are well controlled, and the major holding companies contributed 694 million yuan in profit in total. The company's expense control is good. The total cost rate for the period is 20.24% (-0.39pct year over year), of which the sales/management/finance expense ratio is 2.00%/13.96%/4.29% (-1.13/-0.16/+0.90pcts) respectively. Among them, financial expenses increased 66.98% year-on-year, mainly due to increased short-term loans and interest expenses due to bill discounting. Of the company's four subsidiaries, only Nghe An Mining lost 69 million yuan, with a cumulative loss of 69 million yuan. Among them, Tianjun Yihai (752 million yuan) and Ligou Mining (5.3745 million yuan) made more profit.
Resolving the “three supplies and one industry” and reducing the burden may benefit from Henan's state-owned enterprise reform in the future. The company announced that it has completed the “three for one industry” transformation and handover on time, involving assets of 652 million yuan and net worth 584 million yuan, which will help reduce the burden on enterprises and improve the efficiency of the main business. As the reform of state-owned enterprises in Henan gradually progresses, the controlling shareholder Henan Nenghua Group is also expected to promote asset securitization. The company, as its sole listing platform, may benefit from group reforms in the future.
Risk warning: Continued pressure on coal prices affects the company's performance growth.
Profit forecasting and valuation. Considering that the company's production growth plan can still maintain a certain increase, we expect it to improve the company's performance. We gave the company a profit forecast of EPS 0.25/0.28/0.32 yuan from 2018 to 2020. The current price is 4.62 yuan, corresponding to P/E19/17/15x from 2018 to 20. The company was given 20 times PE in 2018, with a target price of 5.1 yuan, covering the “increase in holdings” rating for the first time.
