Event: On August 25, 2023, the company released its 2023 semi-annual report. In the first half of 2023, the company achieved operating income of 14.752 billion yuan, a year-on-year decrease of 26.19%; net profit to the mother was 3.367 billion yuan, an increase of 30.96% over the same period last year. In the second quarter of 2023, the company's revenue was 6.828 billion yuan, down 36.52% year on year and 13.85% month on month; net profit returned to 664 million yuan, down 58.18% year on year, and 75.45% month on month.

Jinniu Chemical's equity transfer contributed investment income as the main reason for the increase in performance. In February 2023, the 56.04% equity transfer work of Jinniu Chemical owned by the company was completed, increasing 23H1 investment income by 1,673 billion yuan, an increase of 2608.87% over the previous year, accounting for 37.82% of the total profit. Furthermore, all assets and liabilities of Xingbei Coal and 72% of Qianxin Coal's shares held by the company have been transferred to the outside world through public listing. The divestment of inefficient assets will help the company further enhance its profitability.

The transfer of prospecting rights guarantees the continuation of resources, and the increase in coal production capacity has been considerable. In order to solve the problem of the continuous resources of the Yunjialing Mine and Guo Erzhuang Mine under Hanfeng Company, a wholly-owned subsidiary of the company, Hanfeng Company plans to transfer prospecting rights in the Wu'an Beitongyun Planning Area and Guo Erzhuang Deep Expansion Area held by Han Mining Group in cash. The transaction price is 316 million yuan. After the transaction is completed, the company will increase its total recoverable reserves by 2.102 million tons and production capacity by 1.2 million tons/year. In addition, 1) New production capacity: The company headquarters added 600,000 tons of coking coal production capacity from the West Well of the Xingtai Mine, and the company expects 23H2 to be completed and put into operation; 2) Production capacity increase: In 2023, the Inner Mongolia mining area will increase its thermal coal production capacity by 1.5 million tons. Of these, 300,000 tons from Shengxin Coal will be increased by 2022, 900,000 tons of Jiaxinde and 300,000 tons of Jiadong Coal will be increased by 2023. The Jiadong Coal Industry has successfully obtained a mining license for the resource expansion project. After the project expansion is completed, it can increase high-quality resource reserves by more than 27 million tons. The amount of raw coal that can be recovered is 2004 million tons. The controlling shareholder of the company, Jizhong Energy Group, still has an approved production capacity of about 3.06 million tons outside of the listed company. In the future, the company is expected to increase the coal sector through group asset injection.

Efforts have been made to optimize the product structure, and the growth of the non-coal business is clear. The company is building a third-phase glass fiber production line with an annual output of 120,000 tons/year in Hebei. It is expected to be put into operation in 2024. After production is put into operation, the scale of the industry will enter the first tier of the industry, and the total glass fiber production capacity will reach 400,000 tons. Due to the low utilization rate of the original 230,000 ton PVC production capacity and the 400,000-ton PVC project not yet yielding benefits, business profitability has been hampered. With the commissioning of the project and the construction and operation of a dedicated ethylene terminal, the company is expected to reverse business losses and profits by increasing production and reducing costs. In addition, the 3 million tons/year Baijian iron ore project is undergoing preliminary procedures such as approval for the transfer of prospecting rights to mining rights. The company's non-coal business is developing rapidly and is expected to contribute considerable growth in performance in the future.

Investment advice: We expect the company's net profit to be 44.00/4384/4.541 billion yuan in 2023-2025, corresponding EPS to 1.25/1.24/1.29 yuan/share, respectively, and PE corresponding to the closing price on August 25, 2023, 5/5/5 times, respectively. Maintain the “Cautiously Recommended” rating.

Risk warning: The price of coal has dropped sharply; the commissioning of projects under construction has fallen short of expectations.