The company's 2019 performance was greatly impacted by the coke market and falling prices of coal-based chemical products. We think prices will continue to be weak in 2020, and profits will continue to be under pressure. The company is actively promoting new material industry projects such as graphene-based intermediate-phase carbon microspheres and needle-shaped coke, but currently profits are not significant. Considering the pressure on performance, we downgraded the company to “hold”.
Net profit fell 76% in 2019, and continued to decline 90% in Q1. The company's operating income/net profit in 2019 was 2,725/81 million yuan (-23%/-76% year-on-year respectively), EPS was 0.04 yuan, and the company's 2020 Q1 operating income/net profit was 636 million yuan/6.1908 million yuan respectively (-19.0%/-91.95% year-on-year). The main reason was that the performance of the coke market and coal chemical products market fell short of expectations, and the company's sales price gradually declined from the beginning of the year to the end of the year.
The selling price of the coke business fell 10%, and sales of needle coke continued to grow rapidly. In 2019, the company sold 1.197,800 tons of coke (-15.78% YoY), the unit price was 1,661.79 yuan/ton (-10.09% YoY), and the unit cost was 1,607.51 yuan/ton (+9.00% YoY), mainly influenced by the coal integration policy and the rise in raw coal prices. In the coal-based chemical industry, the company sold 101,600 tons of methanol (+6.71% over the same period), and the unit price/cost was 1,846.10842.59 yuan/ton (-21.43%/+29.02% year on year). The cost increase was mainly due to the outsourced purchase of oxygen. The company sold 111.52 million kilowatts of electricity (+43.19% over the same period). The main reason was the increase in the amount of electricity sold abroad in the current period, and the unit price/cost was 0.32/0.22 yuan/kW (+2.96%-7.07% year-on-year). In terms of new materials, the company's needle coke production increased and was gradually recognized, with production and sales volume of 285/13,000 tons respectively (year-on-year increase of 59.65%/35.56%).
Circular economy industry chain+resource advantages guarantee costs, and actively deploy new material products to promote industrial transformation. The company is located in the most important coking coal and anthracite production area in the east. It has 16.35 square kilometers of dense graphite prospecting rights to guarantee the company's circular economy industry chain “raw coal mining and washing, coal coking gas, gas synthesis of methanol, stabilized light hydrocarbons from methanol, hydrogenated coal-based products from coal tar, advanced carbon materials from coal tar extraction needle coke and intermediate carbon microspheres, coal sludge coke coke, and environmentally friendly building materials made from ash”, ensuring that the cost of traditional business products is lower than the industry average, while ensuring that the cost of traditional business products is lower than the industry average, it can promote graphite and intermediate phase microcarbon New material industry projects such as ball and needle coke have now formed 150 tons of graphite Alkene powder, 50,000 tons of needle coke, 300,000 tons of stable light hydrocarbons, and 2,000 tons of intermediate phase carbon microsphere projects (under construction). Currently, the capacity utilization rate of these projects is low, but it is expected to be a source of long-term profit growth for the company.
Risk factors: Macroeconomic growth has slowed sharply, affecting demand for coke; marketing of new materials products fell short of expectations.
Investment advice: Because the company's performance is more elastic to product prices, considering the current coke market and chemical product price expectations, we lowered the company's EPS forecast for 2020 to 2021 to 0.04/0.10 yuan (original forecast of 0.46/0.58 yuan), and added the company's 2022 EPS forecast to 0.15 yuan. The current stock price is 3.11 yuan, corresponding to the 2020 to 2022 P/E 117/112/61, respectively. Considering the expectation that the company's earnings will continue to be under pressure in 2020, we downgraded the company's rating to “hold”.
