occurrences

On March 22, 2024, the company released its 2023 annual report. In 2023, the company achieved operating income of 343,074 billion yuan, a year-on-year decrease of 0.42%; realized net profit to mother of 59.694 billion yuan, a year-on-year decrease of 14.29%, with basic earnings of 3.004 yuan per share. In the fourth quarter, the company achieved revenue of 90.607 billion yuan, a year-on-year decrease of 3.65%; realized net profit of 11.425 billion yuan, up 8.86% year-on-year, and a decrease of 23.78% from Q3's 14.99 billion yuan. The company's performance slightly exceeded market expectations. The company's Hong Kong stock annual report shows that under international financial reporting standards, the company achieved net profit of 64.625 billion yuan in 2023. Unless affected by factors, it was mainly due to differences in how the accounting standards included costs.

Key points of investment

Coal production and sales are growing steadily, and quantitative price supplements promote steady performance. In 2023, the company achieved commercial coal production of 324.5 million tons, +3.5% year on year; coal sales volume was 450 million tons, +7.7% year over year. In the fourth quarter of a single quarter, commercial coal production was 83 million tons, +5.8% YoY, +1.5% month-on-month; coal sales volume was 118 million tons, +8.2% YoY and +2.5% month-on-month. In addition, the company's coal sales account for 82% of the company's monthly coal sales in total, and the annual Changxie Association accounts for 82%, which is less affected by fluctuations in coal prices. Spot coal prices for 5,500 kcal in Qinhuangdao Port fell 23% in 2023, but the company's comprehensive sales price was 584 yuan/ton, a decrease of only 9.3%. Benefiting from this, the overall performance of the company's coal division was steady in 2024. If data before the merger is offset, the coal division achieved revenue of 273.306 billion yuan in 2023, a year-on-year decrease of 1.50%; achieved gross profit of 87.554 billion yuan, accounting for about 71.18% of the group's total gross profit before the merger offset, and the gross profit margin of coal was 32.04%, a decrease of 3.88pct year-on-year.

Electricity generation and sales volume increased sharply year on year, and the average purchase price of coal fuel declined, increasing profits. During the reporting period, the company's power generation capacity was 212.26 billion kilowatt-hours, up 11.0% year on year, electricity sales volume was 199.75 billion kilowatt-hours, up 11.1% year on year, power generation business revenue was 92.407 billion yuan, up 9.3% year on year, cost 76.785 billion yuan, up 6% year on year. The company's gross margin of power generation increased by 2.60 pct to 16.91%, mainly due to a drop in the purchase price of coal, which achieved gross profit of 15.622 billion yuan, an increase of 29.18% over the previous year, accounting for about 12.70% of the Group's total gross profit before the merger was offset. The selling price of electricity was 0.414 yuan/kilowatt-hour, a year-on-year decrease of 0.96%. By the end of 2023, the company's total installed capacity was 446.34 million kilowatts, an increase of 4.333 million kilowatts over the end of '22; the average number of hours used was 5167 hours, an increase of 4.9% over the previous year. Among them, the capacity of the coal-fired engine assembly machine was 43.16 million kilowatts, an increase of 10.21% year on year. The average utilization time was 5,221 hours, an increase of 5.45% year on year.

Profits in the transportation sector and the coal chemical business both declined to varying degrees year over year. The railway division, port division, and shipping division of the transportation sector recorded total revenue of 54.546 billion yuan during the reporting period, with a year-on-year decrease of 0.26%, achieving gross profit of 19.139 billion yuan, a year-on-year decrease of 10.12%; the coal chemical business contributed revenue of 6.098 billion yuan, gross profit margin of 11.25%, a year-on-year decrease of 4.68 pct. The year-on-year decline in gross profit in the coal chemical division was due to a drop in the average sales prices of polyethylene and polypropylene for coal chemical products.

The proposed cash dividend is about 44.903 billion yuan, and the dividend ratio is about 75.22%. The high dividend attribute is prominent. During the reporting period, the company actually held a total of 159.749 billion yuan in monetary capital and financial assets. Furthermore, the company will not significantly increase capital expenses in the short term, have no large debt repayment requirements, and have abundant and stable cash flow. The company's 2023 annual report plans a cash dividend of 44.903 billion yuan, and the A-share dividend ratio is about 75.22%, which is also higher than the promised minimum dividend ratio of 60% and the 22-year dividend ratio of 72.77%. Based on the closing price on March 22, it was calculated that the dividend rate for A-shares in 2023 was as high as 5.96%, and the dividend ratio for Hong Kong stocks reached 8.27%. According to our analysis, China's Shenhua A share dividend rate of 5.96% compared to the company's dividend rate of 4.32% when the market was sluggish in 2018, and Changjiang Electric Power, which also operated stably, calculated a dividend rate of 3.36% in 2023 on the same date, and there is still plenty of room for decline. It is expected that in the future, in a low interest rate market environment, the company's dividend rate will move closer to Changjiang Electric Power. The dividend rate is expected to drop to around 4.5%. At this time, the company's stock price still has room to rise by nearly 32%.

Profit forecast and investment rating: The company's business model is unique at home and abroad, and it is a scarce resource-based integrated coal and electricity operating company. The company operates steadily and grows steadily, and has the characteristics of stable dividends. We lowered the company's 24-25 net profit forecast from 65.1 billion yuan and 66.2 billion yuan to 59.6 billion yuan and 60.2 billion yuan respectively, adding 61.1 billion yuan to the 26-year profit forecast of 61.1 billion yuan. EPS for 24-26 was 3.00/3.03/3.08 yuan/share, respectively, corresponding to the company's PE 12.66/12.53/12.34 times. Furthermore, from a dividend ratio perspective, as mentioned above, we expect the company's dividend rate to drop to around 4.5%. Based on the current dividend rate of 5.96%, there is still room for a share price increase of nearly 32%. Therefore, considering that the company has both stable growth and high dividend safe-haven attributes, we maintain the company's “buy” rating.

Risk warning: The growth rate of the domestic economy has declined sharply, downstream demand for coal falls short of expectations, and production safety accidents have caused coal production to fall short of expectations.