Incidents:
On April 15, 2024, Gansu Energy Chemical released its 2023 annual report: in 2023, the company achieved operating income of 11.26 billion yuan, -8.2% year-on-year, net profit attributable to shareholders of listed companies of 1.74 billion yuan, or -45.2% year-on-year. Net profit attributable to shareholders of listed companies after deduction was 17.01 billion yuan, +152.7% year-on-year. Basic earnings per share were $0.37, or -52.6% YoY. The weighted average ROE was 12.75%, a decrease of 15.54 percentage points year over year.
On a quarterly basis, in the fourth quarter of 2023, the company achieved operating income of 2.65 billion yuan, -6.9% month-on-month, and -6.1%; realized net profit attributable to shareholders of listed companies of 180 million yuan, -36.2% month-on-month and 59.5% year-on-year; realized net profit without deduction of 160 million yuan, -43.5% month-on-month, reversing losses year-on-year.
Investment highlights:
The decline in 2023Q4 performance was mainly due to an increase of 127 million yuan in management expenses and a 164 million yuan month-on-month increase in asset impairment losses (mainly due to falling inventory prices and impairment of contract assets).
Production and sales: Production and sales increased year-on-year, and the mines under construction will continue to contribute to the increase. In 2023, the company achieved 1.68 million tons of coal production, +31.7% year over year; sales volume of 19.27 million tons, +36.1% year over year.
At the same time, the company still has the Hongshaliang Mine, the Hongshaliang Open Pit Mine (production capacity increased to 3 million tons/year), and the Baiyanzi Coal Mine (900,000 tons/year), which will contribute more in the future.
Prices and costs: Prices and costs have declined, and gross profit has narrowed. In 2023, the average price of the company's coal was 449 yuan/ton, -33.9%; the average cost was 257 yuan/ton, -14.7%; the gross profit per ton of coal was 191 yuan/ton, -49.3%; and the gross profit margin was 42.7%, down 12.9 percentage points year on year.
The company's coal prices and costs have all declined, and gross profit has narrowed markedly.
There is plenty of room for growth in the scale of the “14th Five-Year Plan”. According to the “Outline of the 14th Five-Year Plan” of Gansu Energy & Chemical Co., Ltd. issued by the company, by the end of the “14th Five-Year Plan”, the company aims to reach 23.14 million tons of coal production capacity, 1.4 million tons/year of chemical products, and 3 million kilowatts of installed thermal power and new energy. There is plenty of room for future scale growth.
Coal: In the future, after the construction of the Hongshaliang Mine, Hongshaliang Open Pit Mine, and Baiyanzi Coal Mine under construction by the company is completed, the company's coal production capacity will reach its target.
Chemicals: After the completion of the first phase of the company's clean and efficient gasification (relocation and transformation) project (2020 debt conversion project), the company will form 300,000 tons/year of synthetic ammonia; 40,000 tons/year of methanol; 20,000 nM3/h; 350,000 tons/year of liquid CO; 250,000 tons/year of liquid CO; 60,000 tons/year of melamine; 50,000 tons/year of urea ammonium nitrate solution; 20,000 tons/year of sulfur; 2,500 tons/year of liquid oxygen; 1.34 million tons/year of liquid nitrogen 640,000 tons/year and 148.32 million tons of liquid argon Production capacity/year. However, the company only produced 114,000 tons of compound fertilizer and 48,500 tons of concentrated nitric acid in 2023, so there is plenty of room for future growth in the chemical business.
Electricity: By the end of 2023, the company was producing 809,000 kilowatts of electricity, and the installed capacity of thermoelectric power in the new area under construction was 700,000 kilowatts. To achieve the target, the company still needs to build 1.5 GW thermal power and new energy projects.
Dividends: Cash dividend of 30.8%, dividend rate of 3%. The company plans to pay a cash dividend of 1 yuan (tax included) for every 10 shares, with a total dividend of 535 million yuan, with a dividend ratio of 30.8%. Based on the closing price of April 15, the dividend rate is 3%.
Profit forecast and valuation: The company's 2024-2026 revenue is expected to be 112.57/124.52/13.521 billion yuan, +0/+11/ +9% year on year, and net profit to mother will be 18.03/21.38/2,468 billion yuan, respectively, +4/+19/ +15%; EPS will be 0.34/0.40/0.46 yuan, respectively, corresponding to the current stock price PE of 10.01/8.44/7.31 times. The company still has many projects under construction, and the future plans are large-scale, growing, and covered for the first time, giving it a “buy” rating.
Risk warning: risk of large fluctuations in coal prices; risk of production safety accidents; risk of mine construction progress falling short of expectations; risk of downstream electricity and coking industry demand falling short of expectations; risk of policy regulation exceeding expectations, etc.