Coal prices fluctuated downward in the first half of 2023, the company's performance declined significantly, and the decline in the volume and price of coke, the main products, led to losses in the main business. The investment income contributed by China Coal Huajin of the participating company has also declined. However, the company's chemical sector revenue has increased, the net loss has narrowed, the future performance is expected to continue to improve. Taking into account the improvement of the company's coking business profit is still waiting for the market to improve, the decline in coking coal prices affect the company's investment income, we maintain the company's "overweight" rating.

Net profit in the first half of the year fell sharply by 56% from a year earlier. The company's operating income / return net profit in the first half of 2023 was 4456 million yuan / 916 million yuan respectively (year-on-year changes were-32.08% and 56.15% respectively). The net profit declined greatly, mainly affected by the decline in coke sales. Among them, Q2 achieved operating income / return net profit of 1.989 billion yuan in a single quarter (month-on-quarter-19.38% and year-on-year-42.25% and 84.13% respectively). The main reason for the sharp decline in performance is that the average selling prices of Q2 products have declined, while the decline in raw material prices is relatively small, the company's profit margins have been squeezed, and the company's investment income from coal Huajin, an associate, has also declined compared with the same period last year.

The coke market declined, and the gross profit margin of the company's main business turned negative. In terms of production and marketing, in the first half of the year, the company purchased 1.9684 million tons of washed coal (- 361800 tons compared with the same period last year) and sold 1.4299 million tons of coke (- 380600 tons compared with the same period last year), with an average price of 2228 yuan / ton (year-on-year-20%, a decrease of about 561 yuan / ton). Among them, the average price of Q2 coke is 1952 yuan / ton (- 34% compared with the same period last year, a decrease of about 1008 yuan / ton). In terms of raw material cost, the average unit price of washing coal in the first half of the year was 1782 yuan / ton (- 15% compared with the same period last year, a decrease of about 324 yuan / ton). Among them, the average unit price of Q2 purchase is 1974 yuan / ton (- 30% compared with the same period last year, a decrease of about 684 yuan / ton). The company's gross profit margin on Q1/Q2 sales this year is-7.38% Universe 16.27% (year-on-year-8.06/-20.44pcts). Due to the downturn in the coke market, the company and most enterprises in the industry suffered losses in the first half of this year.

The loss of the coal chemical sector shrank compared with the same period last year, and the profit contribution of subsidiaries was stable. In the first half of 2023, the company's sales volume of asphalt / methanol / carbon black / pure benzene was 6.6%, 11.9%, 1.5 million tons, respectively (compared with the same period last year). The average sales price decreased by 9%, 10%, 15%, 18%, respectively. The reason for the sharp increase in carbon black sales is that the company had a long parking time and a low base due to environmental factors in the same period last year. Shanjiao Feihong Chemical Company, a holding subsidiary responsible for the production and sales of chemical products, recorded a net loss of 15.91 million yuan (- 32.8% compared with the same period last year) in the first half of this year. Sales of the chemical sector are increasing, and revenue is expected to continue to expand in the future. Subsidiary China Coal Huajin achieved a main business profit of 5.9 billion yuan (- 24% compared with the same period last year) in the first half of this year, mainly because the drop in coal prices affected the company's mixed coal and lean coal sales income. China Coal Huajin contributed 1.785 billion yuan (- 22%) of investment income to the company in the first half of the year, effectively ensuring the company's profits in the first half of the year.

Risk factors: Coke prices continue to fall; coking business continues to lose money; coking coal price pressure increases or drags down investment income.

Earnings forecast, valuation and rating: taking into account the continued decline in coke prices in the first half of this year, the company's performance has been significantly affected, we downgrade the company's 2023Universe 2024 EPS 2025 forecast to 0.55 pounds 0.61 pounds 0.64 yuan (the original forecast 0.78 pounds 0.90 pounds 0.92 yuan), the current price is 5.03 yuan, corresponding to the 2023-2025 Pmax E is 9.1 8.2 pounds 7.9x, corresponding to the company B is 0.80.8 pounds 0.7x. Considering the long-term reasonable valuation level of the coal sector (the market capitalization is maintained at the level of net assets, that is, P/B1x), we give the company a target valuation of P/B1x in 2023, corresponding to the company's target price of 6 yuan, and maintain the company's "overweight" rating.