Incident: The company released its report for the third quarter of 2018. It achieved operating income of 58.2 yuan in the first three quarters, an increase of 8.6% over the previous year; the net profit returned to the mother was 670 million yuan, corresponding to EPS of 0.28 yuan/share, a sharp increase of 62.7% over the previous year. Among them, Q3 achieved revenue of 1.94 billion yuan, a decrease of 2.8% over the previous year; the net profit of the mother was 220 million yuan, an increase of 81.1% over the previous year.
Commentary:
1. Q3 Production increased steadily, and attention was paid to the progress of capacity removal. Q3 Raw coal production reached 3.99 million tons in a single quarter, up 3.9% year on year and 6.7% month on month. The steady growth trend continued, mainly due to the fact that the Mengjin mine (1.2 million tons/year) gradually reached full production after it was put into operation. Company Q3 included the Yangcun Mine (1.7 million tons/year) in the 2018 de-capacity mine list. The mine's actual production capacity is 600,000 tons/year, and resources are on the verge of exhaustion. Currently, coal prices still generate large losses every year. Therefore, after withdrawal, it is beneficial to the company's performance improvement, but it is necessary to pay attention to the calculation of asset impairment losses. The company currently has no plans to close its remaining mines, and production is expected to remain around 16 million tons in 2018-2020.
2. The sharp reduction in costs and expenses led to a significant improvement in Q3 performance. In terms of sales volume, the overall sales price of Q3 reached 402 yuan/ton, an increase of 8.1% over the previous year; the sales cost was 231 yuan/ton, down 6.1% from the previous year. Apart from the reduction in trade coal with higher purchase prices, the company's strict control of unproductive expenses should be an important reason. The gross margin of the coal business rebounded to 42.0% in Q3, a sharp increase of 8.7 PCT over the previous year. Since this year, coal mine production has returned to normal. As a result, management expenses due to production stoppages fell sharply by 0.4 billion yuan in the Q3 quarter over the same period last year, freeing up some profit margin. The net profit of Q3 tons of coal is estimated at 56 yuan, which is basically the same as the semi-annual report level, continuing the good performance. It is worth noting that at present, the mining rights of the Tianjun Yihai coal mine, the company's main profit asset, are still flawed. If ownership affects normal production in the future, it may have a big impact on the company's performance and needs to be focused on.
3. Profit forecasts and investment ratings. The company's EPS is expected to be 0.38/0.41/0.43 yuan/share in 2018-2020, respectively, a year-on-year change of 90%/7%/6%. The Group's commitment to resolve competition in the industry and inject assets will also expire in the first half of 2019, so we can focus on this trend. Currently, the company's valuation level is high compared to other targets, and we maintain the “Cautious Recommendation - A” rating.
4. Risk warning. Other mines were included in the removal capacity list, the closure of the Yangcun mine calculated large asset impairment losses, and the ownership issue of Tianjun Yihai mining affected the company's normal production
