Matters:
The company released its 2023 annual report. During the reporting period, the company achieved revenue of 343,074 billion yuan, -0.4% year on year, and realized net profit attributable to mother of 59.694 billion yuan, -14.3% year on year; net profit excluding non-return to mother was 62,868 billion yuan, -10.6% year over year. Among them, Q4 achieved revenue of 90.607 billion yuan, +9.1%/-3.7% month-on-year, and realized net profit of 11.425 billion yuan, -23.8%/+8.9% month-on-month and year-on-year respectively, after deducting net profit of 15.057 billion yuan, and +1.5%/+26.2% month-on-month and year-on-year respectively.
Production and sales of the main coal and electricity industry grew steadily, and gross profit from transportation and coal chemicals declined. Coal: In 2023, coal production/sales volume was 32450/450 million tons, up +3.5%/+7.7% from 2022. The average price of coal was 607 yuan/ton, -8.6% year on year; electricity: power generation/sales volume was 2122.6/1997.5 billion kilowatt-hours, respectively, +11.0%/+11.1% year-on-year, with the main coal power industry growing steadily. Transportation: Railway traffic volume was 309.4 billion tons and kilometers, +4.0% year on year; coal chemicals: Polyethylene/polypropylene sales volume was 36.4/342 million tons, +1.7%/+0.3% year over year. In 2023, the coal/ electricity/ railway/ port/ shipping/ coal chemical sectors achieved gross profit margins of 32.0%/16.9%/37.0%/44.4%/5.0%/11.2%, respectively, with a year-on-year ratio of -3.9 pct/+2.6 pct/-4.4pct/-1.6pct/-9.0pct/-4.7pct.
Gao Changxie accounts for stable performance, and the coal power business is expanding steadily. According to Baichuan Yingfu, the average price of Q5500 thermal coal in Qinhuangdao in 2023 was 981 yuan/ton, -22.0% compared with the same period last year. However, the price of Changxie was stable. The average price of Changxie in Q5500 was 713.8 yuan/ton, -1.1%. The company's 2023 Changxie/monthly Changxie sales ratio was 57.5%/24.4%, totaling about 81.9%, helping to maintain stable profits; units 1 and 2 of the Yueyang project in Hunan and units 1 and 2 of the Guangdong Qingyuan Phase I project have been put into operation one after another; as of the date of disclosure of the report, the first and second wells of the Xinjie Taigemiao mining area in Xinjie, Inner Mongolia had obtained mining licenses tons/year. The increase in Baode coal mine production capacity from 5 million tons/year to 8 million tons has been approved by the State Mine Safety Administration. The extension of coal and electricity production capacity is progressing steadily.
The dividend payment rate continues to be high, and the dividend rate is clearly attractive. In January 2024, the State Council's State-owned Assets Administration Commission Property Administration announced that market value management would be included in the assessment of central enterprises. The company has always attached great importance to a reasonable return on investment for investors. It achieved high dividend payment rates of 75.2%/72.8%/100.4%/91.8% in 2023/2021/2020, respectively. The dividend rate in 2023 was close to 6%, which is close to the sector's overall dividend rate. Based on Wind's agreed earnings per share and the 22-year dividend ratio estimate, the current (3.26) average dividend rate for the coal sector is about 6.3%.
The decline in coal prices in ports has narrowed, and the bottom support is obvious. Currently, downstream spot demand is limited, and the pre-holiday increase in thermal coal is gradually declining due to weak supply and demand. As of March 22, the price of thermal coal in Qingang (860 yuan/ton) decreased by 96 yuan compared to the 24-year peak price (956 yuan/ton). However, current port inventories are significantly lower than in the same period in 2023. Furthermore, overseas thermal coal prices have been rising continuously for many days since mid-February. Prices of some domestic and foreign coal types have been inverted. Meanwhile, port coal prices have fallen, and the export economy of Xinjiang coal has declined, and supply reduction has formed a bottom support, and the decline in thermal coal has gradually narrowed.
Investment proposal: Taking into account changes in the production capacity increase policy and the company's 2023 performance, etc., we adjusted the company's net profit forecast for 2024-2025 to 63.03/62.06 billion yuan, and added the 2026 performance forecast to 62,888 billion yuan. Referring to the company's historical valuation and dividend rate level in the past three years, we gave the company a target PE of 13 times in 2024, corresponding to the target price of 41.73 yuan. Further considering the company's dividend rate level, we maintained a “strong” rating.
Risk warning: Demand for coal is weak; transportation costs are high; changes in the coal chemical cycle.