Incident: According to the company's 2023 interim report, in the first half of 2023, the company achieved operating income of 4.238 billion yuan, a year-on-year decrease of 4.84%, net profit of 1,118 billion yuan, an increase of 27.15% over the previous year, net profit after deduction was 1,110 billion yuan, an increase of 25.76% over the previous year, basic earnings per share was 0.9314 yuan, an increase of 27.15% over the previous year. The weighted average return on net assets was 8.03%, a decrease of 0.31 pct from the same period last year.
Comment:
The fall in coal prices has led to a decline in the company's revenue, and the company's profit has bucked the trend by optimizing cost control. According to the company's 2023 operating data announcement, in the first half of 2023, raw coal production was 4.48 million tons (-10% YoY), commercial coal production was 3.6 million tons (-2.9% YoY), and commercial coal sales volume was 3.79 million tons (+4.17% YoY).
In the first half of 2023, the price of coking coal produced in Huaibei, Anhui was 2,321 yuan/ton (-1.01% year-on-year), and the price of 5,000 kilocalories of thermal coal produced in Huaibei, Anhui was 971 yuan/ton (-4.33)%. Affected by this, the main coal sales revenue was 3,987 billion yuan (-3.27% year on year). It is worth noting that the company's cost optimization cost was cost control, coal sales cost was 2,067 billion yuan (-14.48% year on year), and commercial coal sales gross profit was 1.92 billion yuan (+12.6% year on year).
The company's capital structure is stable and expenses are well controlled. According to the company's 2023 interim report, the company's sales expenses for the first half of 2023 were 32.18 million yuan (-11.17% year-on-year), mainly due to a decrease in expenses such as transportation and port fees. Management expenses were 404 million yuan (-23.14% year on year), mainly due to a reduction in equipment overhaul expenses. Financial expenses were $20.93 million (+40.38% year on year), mainly due to increased amortization of unconfirmed financing expenses during the reporting period due to disposal costs and long-term payables. R&D expenses were 174 million yuan (+31.12% YoY), mainly due to an increase in R&D project progress payments. In the first half of 2023, the company's balance ratio was 42.37% (year-on-year -0.52 pct).
The Group's first 10-million-ton mine was born. Currently, the Group's asset securitization rate is low, and there is still room for improvement.
On June 13, the production capacity approval report of the Madiliang Coal Mine of the Intelligent Coal Company of the Anhui Coal and Power Group, a group shareholder belonging to the company, was approved by the Ordos Municipal Energy Administration. The production capacity was increased from 8 million tons/year to 10 million tons/year. It marks the birth of the first 10-million-ton mine of Northern Anhui Coal and Power Group Co., Ltd., and the Group's production capacity is expected to grow further in the future. It is worth noting that the total assets of the Northern Anhui Coal and Power Group in 2022 were 48.635 billion yuan, the total assets of Hengyuan Coal and Power, the only listed company in the group, were 20.833 billion yuan, and the group's asset securitization rate was 42.8%, so there is some room for improvement.
Lay out the field of new energy power generation and actively promote distributed photovoltaic power generation projects in mining areas. According to the company's 2023 interim report, the company's Qidong coal mine implemented a distributed photovoltaic power generation project with a total project investment of 27.56 million yuan, a design annual power generation capacity of 5.71 million kilowatt-hours, and a design use period of 25 years. Construction began on August 3, 2022, and completed in early 2023. The overall technical design uses “block power generation and centralized grid connection”
On the “modular” technical side, the project construction includes photovoltaic modules, inverters, junction boxes, etc., with an installed capacity of about 5.89 megawatts. A total of 2,483,400 kilowatts of electricity were generated from January to June 2023. This is equivalent to reducing carbon dioxide emissions by more than 1,700 tons.
Profit forecasts and investment recommendations. We expect Hengyuan Coal and Power's revenue from 2023-2025 to be 8.04 billion yuan, 8.694 billion yuan, and 9.440 billion yuan, net profit of 2,680 billion yuan, 2,963 billion yuan, and 3.254 billion yuan, and EPS (diluted) of 2.23 yuan, 2.47 yuan, and 2.71 billion yuan. With a closing price of 8.11 yuan on August 16, 2023 corresponding to P/E of 3.6/3.2/3.0x, the “increase in holdings” rating was given for the first time.
Risk warning: In the second half of the year, macroeconomic recovery fell short of expectations, production safety accidents occurred in key coal mines, project construction progress fell short of expectations, and coking coal prices fell beyond expectations.