Mountain Coal International released its 2023 annual report on March 29, 2024:

In 2023, the company achieved operating income of 37.371 billion yuan, a year-on-year decrease of 19.45%; net profit attributable to mother was 4.260 billion yuan, a year-on-year decrease of 38.53%; net profit after deduction of 4.409 billion yuan, a year-on-year decrease of 38.23%; and net cash flow from operating activities was 5.985 billion yuan, a year-on-year decrease of 58.07%. Basic earnings per share were 2.15 yuan, down 38.57% year on year; weighted ROE was 28.51%, down 23.32 percentage points year over year.

2023Q4 achieved operating income of 8.472 billion yuan, a year-on-year decrease of 21.26% and a month-on-month increase of 3.03%; net profit to mother of 278 million yuan, a year-on-year decrease of 82.50% and a decrease of 69.95%; net profit after deducting non-return to mother of 351 million yuan, a year-on-year decrease of 72.89%; and basic earnings per share was 0.14 yuan/share, a year-on-year decrease of 82.50% and a year-on-month decrease of 70.21%.

Coal business: Production and sales improved month-on-month in Q4, and falling coal prices suppressed the release of performance.

In 2023, the coal business achieved operating income of 36.709 billion yuan, a year-on-year decrease of 20.00%; operating costs of 22.143 billion yuan, a year-on-year decrease of 11.85%; and realized gross profit of 14.566 billion yuan, a year-on-year decrease of 29.86%. 2023Q4 achieved coal revenue of 8.272 billion yuan (-27.84%, +2.52%), operating costs of 5.551 billion yuan (+9.35% year over year, +6.19% month on month), and realized gross profit of 2,722 billion yuan (-115.45% year on year, -4.22% month on month).

In terms of production and sales volume, Q4 production and sales increased month-on-month. In 2023, coal production was 38.98 million tons, a year-on-year decrease of 3.92%; sales volume was 52.51 million tons, a year-on-year decrease of 2.55%, of which sales of self-produced coal and trade coal were 3486 and 17.65 million tons respectively. 2023Q4 produced 8.84 million tons (-7.67% YoY, -1.37% YoY); sold 13.09 million tons (-8.72% YoY, +5.07% YoY), of which 7.9 million tons of self-produced coal were sold (+4.35% YoY) and 5.19 million tons of trade coal (+6.18% YoY).

In terms of price, the price of coal fell month-on-month in Q4, and the decline in the price of self-produced coal was quite obvious. The average price in 2023 was 699 yuan/ton, a year-on-year decrease of 17.91%. Among them, the prices of self-produced coal and trade coal were 683 yuan/ton and 732 yuan/ton, respectively. The average price of 2023Q4 is 632 yuan/ton (-16.99%, -2.42% month-on-month), of which the price of self-produced coal is 606 yuan/ton (-5.46% month-on-month) and the price of trade coal is 672 yuan/ton (+2.04% month-on-month).

In terms of cost, the Q4 cost side remained stable month-on-month. The average unit cost in 2023 was 422 yuan/ton, a year-on-year decrease of 9.54%. The average gross profit per unit was 277 yuan/ton, a year-on-year decrease of 28.03%. The average unit cost of 2023Q4 is 424 yuan/ton (YoY +15.96%, month-on-month +1.07%). The average gross profit per unit was 208 yuan/ton (-77.61% YoY, -8.85%).

The cash dividend ratio is 30.25%. On March 29, 2024, Mountain Coal International issued the “Notice on the 2023 Profit Distribution Plan”, announcing that it plans to distribute cash dividends of 1,289 million yuan in 2023, with a dividend of 0.65 yuan per share, and a cash dividend ratio of 30.25%. Based on the stock price on April 1, 2024, the estimated dividend rate is 4.21%. The company promises that within 2024-2026, the annual cash dividend ratio will not be less than 60%. Therefore, we believe that Shanmei International's cash dividend ratio is expected to increase in 2024, and the company still has a high allocation value.

Profit forecast, valuation and investment rating: The company's 2024-2026 revenue is expected to be $428.64, 413.88 and 40.254 billion yuan, respectively, and realized net profit of $53.06, 56.74 billion yuan, and 5.987 billion yuan respectively (additional profit forecast for 2026). Earnings per share are 2.68, 2.86, and 3.02 yuan, respectively. The current stock price is 15.45 yuan. The corresponding PE is 5.8X/5.4X/5.1X, maintaining the company's “buy” rating.

Risk warning: Risk of a sharp drop in coal prices, falling short of expectations in capacity utilization, and untimely updates of research and usage information data.