The company publishes its semi-annual report for 2020. The main financial data are as follows:

In the first half of 2020, the company achieved operating income of 10.413 billion yuan, a decrease of 8.70% over the same period last year; net profit attributable to shareholders of listed companies was 613 million yuan, an increase of 34.00% over the same period last year; net profit deducted from non-return was 613 million yuan, an increase of 47% over the same period last year; net cash flow from operating activities was 1.74 billion yuan (+ 91%); earnings per share were 0.17 (+ 34%).

In the second quarter of 2020, the company realized operating income of 5.347 billion yuan, down 7.14% from the same period last year, up 5.59% from the previous year. The net profit of shareholders belonging to the parent company was 362 million yuan, up 62.37% from the same period last year and 44.57% from the previous year. The net profit after deduction was 354 million yuan, up 48.2% from the same period last year and 37.07% from the previous year.

The production and sales of clean coal increased, and the comprehensive price of coal decreased by 13%.

In the first half of 2020, the output of raw coal was 14.0303 million tons, a decrease of 445800 tons (- 3.1%) compared with the same period last year; a total of 6.2274 million tons of clean coal was produced, an increase of 131800 tons (+ 2.2%) over the same period last year. Sales of commercial coal were 15.05 million tons, down 290000 tons (- 1.9%) from the same period last year. Among them, sales of washed coal rose by 161700 tons to 6.23 million tons (+ 2.7%), sales of raw coal fell by 382300 tons to 4.7 million tons (- 7.53%), and washed and mixed coal decreased by 259 million tons to 2.74 million tons (- 7.31%).

During the reporting period, the comprehensive selling price of commercial coal was 537 yuan / ton (- 13%), including 965 yuan / ton of washed coal (- 13%), 265 yuan / ton of raw coal (- 17%) and 246 yuan / ton of washed coal (- 16%). The downward range of coal price is basically in line with expectations.

Costs fell sharply and operating profits increased slightly against the market.

The company's operating income was 10.413 billion yuan, down 8.7% from last year, but the operating cost was 7.98 billion yuan, 10.87% lower than the same period last year, and the sales and management expenses also decreased by 9.1% and 13.3% respectively. The cost savings were greater than the reduction in operating income, and the company's operating profit in the first half of 2020 was 1.06 billion yuan, a slight increase of 5.8%.

In the first half of the year, the cost per ton of coal was 399 yuan per ton, down 15.2% from the same period last year, mainly due to the following reasons:

First, the company increased expenditure control efforts to improve the efficiency of waste repair; second, due to the special circumstances of the first half of the year, the company benefited from social security and financial preferential policies; third, the relocation of villages to save costs. Due to the sharp decline in costs, the company's gross profit per ton of coal was 149 yuan / ton, an increase of 1.7% over the same period last year.

Acquisition & Capital increase Azure Dragon Coal Industry injects high-quality new production capacity into the company

On July 10, the company plans to acquire 30 per cent of Azure Dragon Coal held by the group, and in August it plans to acquire 60 per cent of the shares and increase its capital by 810 million yuan. Azure Dragon Coal Mine is designed to utilize recoverable reserves of 37.55 million tons and production scale of 900,000 tons per year. Coking coal with good quality, high caking index, high calorific value, low ash and low sulfur is the main type of coking coal. This acquisition will help solve the problem of inter-industry competition with the controlling shareholders, inject high-quality coking coal resources into the company, and enhance the competitiveness of the company.

Profit forecast and valuation: we predict that the net profit attributed to the parent company from 2020 to 2022 will be RMB 1.123 billion, with year-on-year growth of + 20%, + 14% and + 15%, equivalent to RMB 0.31 and 0.35 per share, respectively. The current share price of RMB 3.99 corresponds to a multiple of PE in 13-11-10, maintaining the company's "overweight" rating.

Risk hints: macroeconomic fluctuation risk; downstream demand downturn risk; administrative regulation and control uncertainty risk; import policy uncertainty risk.