Incident: Huayang Co., Ltd. released its 2023 annual report: In 2023, the company achieved operating income of 28.518 billion yuan, a year-on-year decrease of 18.63%, net profit to mother of 5.179 billion yuan, a year-on-year decrease of 26.26%, and net profit to mother after deduction was 5.083 billion yuan, a year-on-year decrease of 30.95%. Basic earnings per share were 1.44 yuan, a year-on-year decrease of 26.15%. The weighted average return on net assets was 19.45%, a year-on-year decrease of 11.94 pcts.
On a quarterly basis, in the fourth quarter of 2023, the company achieved operating income of 6.867 billion yuan, an increase of 10.07%, a year-on-year decrease of 20.88%; realized net profit of 908 million yuan, a decrease of 27.95% month-on-month and a decrease of 56.07% year-on-year; and realized net profit of 846 million yuan after deduction, a decrease of 32.08% month-on-month and 65.11% year-on-year.
Comment:
The performance of coal business owners declined due to falling prices, and gross margin increased slightly due to cost control results. 1) Production and sales volume: According to the company's 2023 annual report, the company's coal production in 2023 was 45.91 million tons (+1.50% YoY), with coal sales volume of 41 million tons (-11.68% YoY), of which block coal production was 3.9952 million tons (-15.47% YoY), sales volume was 3.9952 million tons (-15.47% YoY); final coal production was 346.57 million tons (-10.91% YoY), with sales volume of 34.931 million tons (YoY -10.93%). 2) Selling price and cost:
In 2023, the average price of the company's coal was 605.82 yuan/ton (-14.64%), of which the price of a tonne of coal was 976.42 yuan/ton (-13.24%), and the final tonne of coal sold was 545.59 yuan/ton (-13.27% YoY); the cost of the company's ton of coal was 295.64 yuan/ton (-18.90% YoY), of which the cost of a ton of coal was 376.45 yuan/ton (YoY -29.0%), and the cost of the last ton of coal was 274.43 yuan/ton (-18.21% YoY)%). 3) Profit: In 2023, the coal business achieved a gross profit of 310.20 yuan/ton of coal (-10.13% year over year), mainly due to falling coal prices combined with a decrease in sales volume. Among them, the gross profit of a ton of coal was 599.97 yuan/ton (+0.95% year over year), and the gross profit of the last ton of coal was 271.17 yuan/ton (-7.62% year over year).
Overall, in 2023, the company's coal achieved revenue of 24.839 billion yuan (-24.61% YoY), coal operating costs of 12.121 billion yuan (-28.37% YoY), the coal business achieved gross profit of 12.718 billion yuan (-20.63% YoY), and gross profit margin of 51.20% (YoY increase of 2.56 pct), mainly due to the company's continuous strengthening of cost control.
The volume and price of the electricity business have risen sharply, and gross profit has increased dramatically. 1) Production and sales volume: According to the company's 2023 annual report, the company's electricity generation capacity in 2023 was 1,710 billion kilowatt-hours (+47.17% year over year). 2) Price and cost: In 2023, the company's electricity price per unit was 0.3 yuan/kilowatt-hour (+61.32% year over year); the company's electricity business unit cost was 0.25 yuan/kilowatt-hour (+52.66% year over year). 3) Profit: In 2023, the electricity business achieved gross profit of 0.05 yuan/kilowatt-hour per unit (+128.09% year-on-year).
Overall, in 2023, the company's electricity business achieved operating income of 509 million yuan (+137.42%), operating costs of 427 million yuan (+124.67%), gross profit of 83 million yuan (+235.68% year over year), and gross margin of 16.23% (year-on-year increase of 4.75pct).
The dividend rate reached 7%, and the cash dividend ratio was higher than promised. In terms of dividends, the company plans to pay a cash dividend of 0.718 yuan (tax included) per share in 2023. The total cash dividend amount (tax included) is 2,590 billion yuan (tax included), accounting for 50.01% of the net profit attributable to the mother. Based on the closing price of 10.25 yuan/share on April 18, 2024, the dividend rate is 7%. According to the company's “Shanxi Huayang Group Xinneng Co., Ltd. 2024-2026 Shareholder Dividend Return Plan”, the company uses cash to distribute dividends when the profit for the current year and the cumulative undistributed profit is positive, and the profit distributed in cash every year is not less than 30% of the distributable profit achieved in that year.
Coal mines under construction are progressing steadily, and power generation performance is expected to grow. According to the company's 2023 annual report, 1) On the coal side:
The Qiyuan coal mine construction project has an approved production scale of 5 million tons/year. It is expected that the conditions for joint trial operation will be in place by the end of September 2024. The approved production scale of 5 million tons/year for the Boli coal mine construction project has also obtained project approval and approval, and construction is being stepped up according to the original schedule. After the two major coal mine projects are put into operation, it is expected to further contribute to the company's coal production. 2) In terms of power generation: The two units of the Xishangzhuang 2×660MW low calorific value coal thermal power project have all obtained power generation operation qualifications, which are expected to contribute to the company's increased power generation.
The new energy business continues to advance, helping the company transform and develop its business. 1) Sodium-ion batteries: In 2023, positive and negative electrode materials earned 32.57 million yuan and 21.28 million yuan respectively; in terms of the Pack battery project, the world's first mass production line for 1GWh sodium ion battery and production line for 1GWh sodium ion pack batteries per year have been built, and mass production of 48V18Ah electric bicycle pack batteries and 48V and 72V energy storage battery modules have been achieved. 2) PV module manufacturing project: In 2023, the company's four photovoltaic module production lines were completed, and production line efficiency continued to rise. During the reporting period, the company produced 1 GW of photovoltaic modules and sold 1.5 GW.
Profit forecasting and investment advice. We recommend Huayang Co., Ltd. based on the following three aspects: 1) The main type of coal produced by the company is anthracite, and resources are scarce. 2) The construction progress of the company's 7 yuan and Boli coal mine is progressing steadily, and there is room for growth in the main business. 3) The company lays out a new energy circuit, and the sodium electricity business helps the company transform.
We expect that in 2024-2026, the company will achieve operating income of 24.950 billion yuan, 27.676 billion yuan, 30.293 billion yuan, and net profit to mother of 5.240 billion yuan, 5.638 billion yuan, and 6.247 billion yuan. EPS (diluted) was 1.45 yuan, 1.56 yuan, and 1.73 yuan. With a closing price of 10.25 yuan/share on April 18, 2024, the corresponding PE was 7.1x/6.6x/5.9x. Considering that the company's coal business is still growing, the company's rating was raised to “buy”.
Risk warning: Production safety accidents occurred in key coal mines, downstream demand fell short of expectations, coal prices fell systematically, and safety and environmental protection policies became stricter.