Introduction to this report:

Reduced costs and increased efficiency drove performance growth in the first half of the year; the Q2 cost decline hedged the impact of falling coal prices; subsequent costs were still expected to be further reduced, and performance was worry-free; the transition to new energy sources created a second growth point, and high dividend value was highlighted.

Key points of investment:

Lower profit forecasts and target prices to maintain the holdings growth rating. The company released 2023H1 operating data. Considering that the long-term coking coal price of the company has declined since June, the company lowered its 23-25 EPS to 2.12, 2.15, and 2.21 (originally 2.53, 2.56, 2.65) yuan, gave it 5 times PE over 23 years, lowered the target price to 10.60 (originally 11.15) yuan, and increased the rating.

Reduced costs and increased efficiency led to performance growth in the first half of the year. 1) The company's 23H1 achieved raw coal production of 4.48 million tons (-10.00%) and commercial coal sales volume of 3.79 million tons (+4.17%); 2) tonnes of coal sold at 1,051 yuan/ton (-7.15%). The price of comprehensive coal declined year-on-year or was affected by the decline in the price of mixed coal and the long-term coking coal price reduction in June; 3) the cost of one ton of coal was 545 yuan/ton (-17.90%), driving performance growth. The coal business achieved gross profit of 1,920 billion yuan (+12.60%), with a gross profit margin of 48.16% (+6.79 pct).

The Q2 cost reduction hedges against the impact of falling coal prices. Subsequent costs are still expected to be further reduced, and performance is worry-free.

1) Q2 raw coal production volume was 2.27 million tons (+2.59% month-on-month); 2) Q2 tons of coal sold at 1,028 yuan/ton (-45 yuan/ton month-on-month); 2) Q2 tons of coal sold at 1,028 yuan/ton (-45 yuan/ton month-on-month), which is expected to be mainly due to the impact of the long-term coking coal price reduction in June. According to Wind, the price of coking coal (produced in Huaibei) fell about 500 yuan/ton in June compared to May; 2) Q2 tons of coal cost 507 yuan/ton (down -73 yuan/ton from month to month) This increase in efficiency drives Q2 performance, and the company's Q1-4 ton coal cost in '22 They are 695, 624, 580, and 235 yuan/ton, respectively. They are decreasing quarterly. Costs are expected to drop sequentially in the second half of 2023, driving performance growth.

The transition to new energy has created a second growth point, with high dividends and high dividend values highlighted. 1) The company plans to invest 440 million yuan in 46% of the equity to establish Suzhou Wanheng New Energy to build an 800,000 kilowatt new energy project; 2) The company's dividend rate will increase to 48% in 2022, with an estimated dynamic dividend rate of 13% in 2023.

Risk warning: coal prices fell more than expected; production fell more than expected.