Net profit to mother fell 39% year over year in '23. In '23, the company achieved net profit of 373.7/4.26 billion yuan, -19.5%/-38.5% year-on-year, deducted non-net profit of 4.41 billion yuan, or -38.2% year-on-year. Non-operating expenses were mainly about 290 million yuan, of which net profit from Q4 was 280 million yuan, or -70% month-on-month. The company plans to pay a cash dividend of 0.65 yuan (tax included) per share. The cash dividend accounts for 30.25% of the mother's net profit. Based on the closing price on March 29, the dividend rate is 3.8%.

Coal production fell 3.9% in '23, and production was still under pressure to reduce in '24. Profits narrowed due to falling prices and rising costs. 1) Self-produced coal: In '23, the company produced 38.98 million tons of raw coal, -3.9% year-on-year. Of these, Q4 production was 8.84 million tons, -7.2%/-1.4% YoY. The company plans to produce no less than 33 million tons of coal in '24. The sales volume of self-produced coal in '23 was 34.86 million tons, -5.7% YoY. The average sales price was 683 yuan/ton, -16.6% YoY, and the unit sales cost was 281 yuan/ton, +2.8% YoY. Among them, Q4 sold 7.9 million tons of self-produced coal, -14.2%/+4.4%; the average sales price was 606 yuan/ton, -13.7%/-5.5% month-on-month; and the unit sales cost was 283 yuan/ton, +3.9%/-0.7% month-on-month. In '23, Hequ Open Air made a net profit of about 2,726 billion yuan, accounting for 33% of the company's net profit returned to the mother. 2) Trade coal: The company's trade coal sales volume in '23 was 17.65 million tons, +4.3% year-on-year, and gross profit per ton of coal was 32 yuan, -10.2% year-on-year. Among them, Q4 trade coal sales volume was 5.19 million tons, +2.8%/+6.2% month-on-month; gross profit per ton of coal was 33 yuan, +8.4% month-on-month. 3) Changes in production capacity: In 23 years, the company accelerated the construction of high-yield and efficient mines. Among them, Xinshun Coal (65% equity) and Zhuangzihe Coal (51% equity) were completed and put into operation.

The increase in the management fee rate led to an increase in the cost of the period. The total cost rate for the 23-year period of the company was 7.86%, +1.47pct year on year, of which the management expense ratio was 4.73%, +1.28pct year on year. Q4 In a single quarter, the company's expense ratio was 12.5%, or +3.1/+4.5pct, of which the management expense ratio was 8.74%, or +2.3/+4.6pct month-on-month. The increase in management expenses led to an increase in the company's expenses during the period.

The dividend ratio was reduced to 30% in '23, and the promise of no less than 60% cash dividend in 24-26 remains unchanged. To prepare capital for reserve coal resources in '24, the company's dividend ratio was temporarily lowered to 30%. However, on March 28, 2023, the company issued the “2024-2026 Shareholder Return Plan”. The proposed profit to be distributed in cash is no less than 60% of the distributable profit achieved in that year, and it is expected that a consistent high dividend will continue in 24 years.

Profit forecasting and valuation. We believe that the company's coal coke integration makes profits stable and flexible. We expect the company's net profit to be 56.7/56/5.61 billion yuan from 24 to 26, and EPS to be 2.86/2.83/2.83 yuan. Based on comparable company valuations, the company will be given 7 to 8 times PE in 24 years, with a corresponding reasonable value range of 20.03 to 22.89 yuan, maintaining the “superior to the market” rating.

Risk warning. Demand fell sharply, and the commissioning of new construction projects fell short of expectations.