Incident: Hengyuan Coal and Electricity released the 2023 Annual Report: In 2023, the company achieved operating income of 7.786 billion yuan, a year-on-year decrease of 7.24%, net profit to mother of 2,036 billion yuan, a year-on-year decrease of 19.43%, and net profit to mother after deduction was 1,990 billion yuan, a decrease of 21.5% year-on-year. Basic earnings per share were 1.70 yuan, a year-on-year decrease of 19.42%. The weighted average return on net assets was 16.69%, a year-on-year decrease of 5.24 pcts.
On a quarterly basis, in the fourth quarter of 2023, the company achieved operating income of 1,819 billion yuan, an increase of 5.16% and a year-on-year increase of 11.10%; realized net profit of 403 million yuan, a decrease of 21.90% month-on-month and a decrease of 55.53% year-on-year; and realized net profit of 369 million yuan, a decrease of 27.65% month-on-month and a year-on-year decrease of 59.40%.
Comment:
The coal business volume rose and fell, reducing costs and increasing efficiency to ease the pressure on performance. 1) Production and sales volume: According to the company's 2023 annual report, the company's total coal output in 2023 was 7.4549 million tons (+6.07% YoY), of which mixed coal production was 3.7696 million tons (+5.64% YoY) and 2,8318 million tons (+0.04% YoY); the total sales volume of the company's coal was 7.618,800 tons (+8.10% YoY), of which the sales volume of mixed coal was 3.932,600 tons (+8.72% YoY), and the sales volume of refined coal was 2.8807 million tons (+ YoY) 1.32%) 2) Price and cost: In 2023, the average sales price of the company's coal was 958.11 yuan/ton (-14.24%), of which mixed coal was 541.07 yuan/ton (+3.11% YoY) and refined coal was 1703.91 yuan/ton (-15.88% YoY); the average sales cost of the company's coal was 516.99 yuan/ton (-6.09% YoY), mainly due to a decrease in manufacturing costs (-20.17% YoY), materials (-0.62% YoY), etc., of which mixed coal was 17.374 yuan/ton (-12.00% ), Refined coal washing was 842.39 yuan/ton (+0.44% year over year). 3) Profit:
In 2023, the coal business achieved a gross profit of 441.12 yuan/ton of coal per ton (-22.15%), of which mixed coal was 223.33 yuan/ton (+36.46% year over year) and refined coal washing was 861.51 yuan/ton (-27.41% year over year), mainly due to a decrease in the unit cost of mixed coal and a drop in the unit price of refined coal washing.
Overall, in 2023, the company's coal business achieved revenue of 7.556 billion yuan (-7.18%), operating costs of 4,029 billion yuan (+0.64% year over year), gross profit of 3.361 billion yuan (-14.75% year over year), and gross margin of 46.67% (year-on-year decrease of 4.15 pcts).
The profitability of the electricity business is improving, and we are waiting for production capacity to be released to turn a loss into a profit. According to the company's 2023 annual report, the company completed a power generation capacity of 3.356 billion kilowatts in 2023 (including Qian Yingzi Power Generation Company). The power business achieved operating income of 47 million yuan (-13.96% YoY), operating costs of 69 million yuan (-18.96% YoY), realized gross profit of -0.22 billion yuan (YoY +27.99%), and gross margin of -46.39% (YoY increase).
The projects under construction are progressing steadily, and the green power business is being laid out. According to the company's 2023 annual report, 1) In terms of coal, the Hengyuan coal mine renovation project is expected to reach the intended state of use in June 2024 and officially put into operation; the Qianyingzi coal mine renovation and second-level deepening project, and Hengtai's deepening technical reform project are progressing according to plan. 2) In terms of electricity, the main projects such as chimneys and cooling towers of the Qianyingzi Phase II project are progressing in sequence. After completion, 1,000 MW supercritical coal-fired power generation units will be added; the Qidong distributed photovoltaic power plant will be put into operation, with a design annual power generation capacity of 5.71 million kilowatt-hours and an installed capacity of about 5.89 megawatts; according to the “Investor Relations Activity Record Form (2023-10-28)”, Wanheng New Energy's 300 MW wind power project and distributed photovoltaic projects in the Huaibei mining area have been completed and approved., 500,000 kW in phase II The project will wait for the first phase of the project to be completed before proceeding according to the plan.
Continued high dividend payouts with a dividend ratio of 6.92%. In terms of dividends, according to the company's 2023 profit distribution plan, it is proposed to distribute a cash dividend of 0.85 yuan (tax included) per share. The total cash dividend amount (tax included) is 1 billion yuan (tax included). Based on the closing price of 12.29 yuan/share on March 29, 2024, the dividend ratio is 6.92%, accounting for 50.10% of the company's net profit to the mother in 2023.
Profit forecasting and investment advice. We recommend Hengyuan Coal Power based on the following three aspects: 1) The company is located in the Yangtze River Delta region and has significant location advantages. 2) The company vigorously promotes new mining technology and new management models, and has good cost control. 3) The main types of coal sold by the company are complete, and production and sales are stable. In 2024-2026, we expect the company to achieve operating income of 7.971 billion yuan, 8.119 billion yuan and 8.512 billion yuan, net profit to mother of 2,028 billion yuan, 2,062 billion yuan and 2,083 billion yuan, EPS (diluted) of 1.69 yuan, 1.72 yuan and 1.73 yuan, corresponding PE of 7.3x/7.1x with a closing price of 12.29 yuan/share on March 29, 2024.
Risk warning: production safety risks, systematic decline in coal prices, stricter environmental safety supervision policies, downstream demand falling short of expectations