Event: on October 23, 2023, the company released its third quarterly report of 2023. In the first three quarters of 2023, the company achieved operating income of 6.517 billion yuan, down 30.67% from the same period last year, and its net profit was 1.281 billion yuan, down 52.68% from the same period last year. In the third quarter of 2023, the company achieved operating income of 2.061 billion yuan, down 27.40% from the same period last year, an increase of 3.60% compared with the same period last year, and the net profit returned to its mother was 364 million yuan, down 40.93% from the same period last year and an increase of 137.40% over the previous year.

23Q3 investment income year-on-year decline drag performance, month-on-month basically flat. In terms of long-term equity investment, the company holds 49% of China Coal Huajin, whose main coal products are spot-sold lean coal and anthracite. According to the company announcement, 23Q3 due to China Coal Huajin return to its mother net profit decreased, the company's investment income dropped compared to the same period last year, thus dragging down the single quarter profit, while according to our estimation, 23Q3 investment income was 641 million yuan, basically the same as 23Q2; 23Q1-3, the company's coke and chemical products profits declined compared with the same period last year, and China Coal Huajin's investment income declined year on year, affecting the company's homing net profit significantly compared with the same period last year.

Coke production and sales increased month-on-month, and the cost decreased. 23Q3 achieved coke production of 726200 tons, down 14.61 percent from the same period last year, up 4.58 percent from the previous year; coke sales were 723900 tons, down 15.45 percent from the same period last year, up 3.59 percent from the previous year. The average selling price of coke in 23Q3 Company was 1932.38 yuan / ton, down 15.36% from the same period last year and 1.01% from the previous year; the unit purchasing cost of coking coal was 1472.63 yuan / ton, down 23.22% from the same period last year and 6.21% from the previous year.

The price of chemicals rebounded month-on-month. The price of asphalt, the main chemical product of 23Q3, fell 17.64% from the same period last year, up 17.77% from the previous year; the price of industrial naphthalene rose 17.04% from the same period last year, up 21.54% from the previous year; the price of methanol fell 9.91% from the same period last year, up 1.36% from the previous year; the price of carbon black fell 19.36% from the same period last year, up 12.23% from the previous year; and the price of pure benzene decreased by 8.31% from the same period last year, up 11.21% from the same period last year.

Replace the backward production capacity and solve the competition in the same industry in accordance with the group's commitment. Due to the decline in equipment performance of the company's coke ovens in operation for many years, and combined with the industrial park planning and environmental protection emission control of the company, the company plans to replace the 900,000 tons / year coking capacity of the coke ovens with Shan Coking Group. The Coking Coal Group integrates its 844,000 tons / year coking capacity and builds a 174.4 million ton / year coking upgrading project in Fenyang Sanquan Coking Park. This capacity replacement will not affect the normal operation of the coke oven and the normal production of the company. After the upgrading project is completed and put into production, the coke oven will be shut down and eliminated. With regard to the problem of inter-industry competition caused by capacity replacement, the Coking Coal Group will implement in accordance with the promise on the Integration of Internal Coking Business issued on December 9, 2020, that is, Shanxi Coking is used as the development platform for the integration of the production and operation business of coke and related chemical products within the group, and the coking enterprises or related assets and businesses controlled by the group are gradually integrated by means of acquisition and merger, business transfer, asset injection, entrustment, etc. The efficiency and scale of the company's coking business are expected to be improved in the future.

Investment suggestion: considering that the prices of 23Q4 coke and coking coal have increased, and the company's main business and investment income are expected to benefit, we estimate that the company's net return profit in 2023-2025 will be 16.81 pound 2.058 billion yuan, corresponding to EPS 0.71 pound 0.80 yuan respectively, and the PE corresponding to October 23, 2023 will be twice as much as 8-7-6. Maintain the "cautious recommendation" rating.

Risk hint: macroeconomic growth is lower than expected; China Coal Huajin investment income is not as expected; coke price fell sharply.