Net profit returned to mother increased by more than 20% in '23. In '23, the company achieved net profit of 299/2.36 billion yuan, +9.2%/+20.8% year-on-year, deducted non-net profit of 2.18 billion yuan, or +22% year-on-year, with non-financial subsidies of 230 million yuan. In Q4, in a single quarter, the company's net profit to mother was 390 million yuan, +9.8%/-33.9% yoy. The company's cash dividend per share was 0.28 yuan (tax included), accounting for 49.1% of net profit due to mother in '23 (+6.7pct year over year), a record high, corresponding to the current dividend rate of 4.1%.

The coal machine business grew steadily, and gross margin increased slightly. In '23, the company's mining automation mechanization equipment revenue was 14.13 billion yuan, the cost was +19.9%, the cost was 9.55 billion yuan, the gross margin increased by 1 pct to 32.4%; the revenue from coal washing equipment was 1.88 billion yuan, +16.8%; the cost was 1.5 billion yuan, +23.1% year on year, gross margin decreased by 4.1 pct to 20.5%; mine production technical services and operating income was 2.07 billion yuan, the cost was 1.59 billion yuan, and the gross margin increased by -22.2 billion yuan. 2.7 pct to 23.1%.

Profits of major subsidiaries increased steadily. The net profit of Tianma Intelligent Control/Shanghai Coal Science/Xi'an Institute/Shanxi Coal Machine/Tiandi Benniu/ Chongqing Institute was 4.2/4/3.3/3.2/3.1/250 million yuan respectively, +7.1%/+19.8%/+98.8%/+7.1%/+47.5%, totaling 2.04 billion yuan, accounting for 64% of the company's net profit in 23 years.

The decline in the cost of the coal business was higher than the sales price, and gross margin bucked the trend. In '23, the company sold 2.73 million tons of commercial coal, which was basically the same as the previous year. The average sales price was 989 yuan/ton, -10.2% year over year, and the unit cost was 468 yuan/ton, -12.5% year over year. The cost reduction was higher than the sales price, which led to a 1.2 pct increase in gross margin to 52.7%. The net profit for energy development of coal subsidiaries in '23 was 660 million yuan, +47.4% year-on-year. The net profit of the coal business accounted for 21% of the company, +3pct year-on-year. The company's cost per ton of coal has declined significantly for two consecutive years, which fully reflects that intelligent coal mine transformation helps reduce costs and increase efficiency, and is expected to further increase the penetration rate of intelligent coal mine transformation.

The profit quality is high, and net cash accounts for 62% of the market value. The amount of the company's operating cash flow in '23 was 5.77 billion yuan, far higher than the net profit level, reflecting the high profit quality. The company currently has monetary capital of 17 billion dollars, interest-bearing liabilities of 1.4 billion dollars, and net cash of 15.6 billion yuan, accounting for 51.8% of the market value (as of April 3, '24).

Profit forecasting and valuation. The coal machine industry is expected to usher in an upward boom cycle, and the company, as an industry leader, is expected to benefit significantly. We expect the company's net profit to be 27.9/32/3.65 billion yuan for 24-26, corresponding EPS of 0.67/0.77/0.88 yuan. Referring to comparable companies, we will give 12 to 14 times PE in 2024, corresponding to a reasonable value range of 8.09 to 9.44 yuan, maintaining the “superior to the market” rating.

Risk warning. Downstream demand has been drastically reduced, and the cost of raw steel has risen sharply.