Event: the company recently released the 2018 mid-term report, during the reporting period, the operating income was 2.39 billion yuan, down 18.0% from the same period last year; the net profit from the return to the mother was 100 million yuan, corresponding to EPS of 0.10 yuan per share, down 74.7% from the same period last year; of which 70 million yuan was deducted from the non-return net profit, down 80.9% from the same period last year. At the same time, the company issued a revised plan for Zheng Coal Group to avoid inter-industry competition, the previously promised deadline for the overall listing of the main coal industry was revised from "December 31, 2018" to "within 5 years from the date when the formalities such as the license of each production body are completed and the rate of return is not lower than that of similar assets of the listed company".

Comments:

1. The loss of capacity led to a decline in production. 2018H achieved 4.03 million tons of raw coal production, down 19.1% from the same period last year; quarterly, 2018Q1/Q2 raw coal output was 194.4 million tons, down 24.1% from 15.7% year on year. In addition to the closure of Micun Mine (1.9 million tons / year) in 2017Q4, the main mines Zhaojiazhai, Jiao No.2 Mine and Lugou to replace or stop production in 2018Q1 are also important reasons for the decline in production. At present, the above-mentioned factors restricting yield have been basically eliminated in 2018Q2, and the yield per season has begun to pick up month-on-month. With the exception of Micun Mine, the rest of the mines have no plans to close temporarily, and the company's approved production capacity has been reduced to 8.85 million tons per year, and the annual output will be maintained at about 8.2 million tons.

two。 The cost rebound pressure is big, the coal plate performance drops sharply. In terms of sales volume, the cost of sales of 2018H was 265 yuan per ton, up 19.9% from the same period last year. Among them, the rebound pressure of staff and workers' salary and safety expenses was greater, rising by 7.8% and 39.3% respectively. In addition, higher financial financing costs and higher taxes and fees over the same period last year also pushed up the full cost to 390 yuan / ton, a sharp increase of 26.2% over the same period last year, close to an all-time high. Although it has benefited from the upward rise in coal prices, the comprehensive selling price has increased by 30 yuan per ton, but it cannot offset the impact of rising costs and falling production. The 2018H coal sector achieved a net profit of 180 million yuan, down 64.3% from the same period last year, which is also an important reason for the poor performance of the China report.

3. Zheng Coal Group revises its commitment to solve inter-industry competition and pays attention to the development of high-quality resources. Due to the poor operating efficiency of its coal mines and flawed property rights licenses, Zheng Coal Group recently revised its plan to avoid inter-industry competition, delaying the deadline for fulfilling its commitments. After combing the group's assets, we can see that in the future, the Xicun, Ludian and Haoqin mining areas distributed in Henan and Inner Mongolia may have the conditions to be injected into listed companies, with a total resource reserves of 3.7 billion tons, but the above-mentioned mining areas have not yet obtained mining warrants. in the future, we still need to pay attention to the process of mining and construction.

4. Profit forecast and investment rating. It is estimated that the company's EPS for 2018-2020 will be 0.27, 0.29, 0.31 yuan per share, with a year-on-year change of-57%, 8% and 8%. The company's output is greatly affected by capacity loss, and recently it is in the stage of production adjustment, so it is difficult to fully release its performance and maintain a "prudent recommendation-A" rating.

5. Risk hint: the production mine is included in the capacity removal plan, and the cost of production safety is further raised.