Key points of investment:
Company announcement: In 2023, the company achieved operating income of 61,475 billion yuan, a year-on-year increase of 3.48%; net profit to mother of 5.173 billion yuan, a year-on-year decrease of 54.37%; after deducting non-net profit of 5.541 billion yuan, a year-on-year decrease of 49.95%. The 23Q4 company achieved operating income of 11.906 billion yuan, a decrease of 17.79%; net profit to mother of 323 million yuan, a decrease of 55.73% from the previous month; deducted non-net profit of 713 million yuan, a decrease of 2.21% from the previous month. The company experienced a significant decline in performance in 2023, mainly due to a fall in high upstream energy prices, which led to a 12.28 percentage point drop in the company's gross margin level to 16.35%. In addition, the company has good control on the cost side. The cost ratio reached 3.37% during the period, down 0.6 percentage points from the previous year.
Coal production and sales have increased significantly, and the addition of additional production capacity combined with “Xinjiang Coal Export” is expected to drive the coal sector's performance upward. In 2023, the company achieved raw coal production of 22.31 million tons, an increase of 9% over the previous year; total coal sales volume was 30.99 million tons, an increase of 16% over the previous year.
However, under the influence of falling global energy prices, the gross margin of the company's coal business fell 9.53 percentage points to 34.68%.
In 2024, along with the continuous advancement of the country's “export of coal” strategy and the continuous improvement of railway transportation channel capacity, the company's comprehensive unit transportation costs are expected to decline further. At the same time, the company's preliminary procedures and approval work for the Malang coal mine continues to advance. It is expected that additional production capacity will be formed this year, driving a gradual increase in the performance of the coal sector.
Under the downward trend in international gas prices, the profit from imported LNG trade is expected to increase. Under the flexible trade model, the company's export gas sales volume reached 6.152,600 tons in 2023, an increase of 30.99% over the previous year. However, due to the combined effects of factors such as high inventories, weak demand, and weakening geopolitical influence, international gas prices fell significantly. According to Wande data, LNG CIF reached 14 US dollars/million British heat in 2023, down 59% year on year, causing the gross margin of the company's natural gas sector to drop 12.76 percentage points to 8.11%. Currently, the company's Qidong LNG Terminal No. 6 storage tank entered the trial operation stage on April 10. It is expected that the trade volume will continue to grow in 2024, and the price spread of the company's domestic LNG trade will increase as international gas prices fall.
With high oil prices fluctuating, profits in the coal chemical sector are expected to remain high. Affected by annual maintenance, the company's methanol production and sales volume reached 91/1.11 million tons in 2023, down 19%/20% year on year; coal chemical by-product production and sales reached 36/710,000 tons respectively, down 18%/24% year on year. Meanwhile, production and sales of coal-based oil products and ethylene glycol increased year on year. Among them, production and sales of coal-based oil products reached 65,690,000 tons, up 4%/4% year on year; ethylene glycol production and sales reached 130,000 tons, respectively, up 25%/25% year on year. It is expected that the production and sales of the company's coal chemical products will maintain a steady increase in the future, and due to the high correlation between the price of the company's coal chemical products and oil prices, it is expected that the company's coal chemical sector's profit will remain high under the fluctuation of high oil prices.
Capital expenditure is promoted in an orderly manner, and shareholders are rewarded with high dividends. The company plans to pay a dividend of 0.7 yuan/share for 2023, with a dividend ratio of 88%. Currently, the main projects under construction by the company include the Malang coal mine, the Qidong LNG terminal, and the Zaisan oil and gas field in Kazakhstan. The projects are all progressing steadily. The annual capital expenditure is expected to be relatively small, and the company's dividends are expected to remain at a high level in the future.
Investment analysis opinion: Considering the major changes in the company's fundamentals in the past year, we adjusted the 2024-2025 performance. Among them, coal prices were lowered to a certain extent, coal sales were lowered as the Malang coal mine progressed less than expected; natural gas prices were lowered to a certain extent because domestic demand did not meet expectations; coal chemicals increased to a certain extent because oil prices were higher than expected. According to comprehensive estimates, the gross profit level of the company's main products in 2024-2025 was reduced by 17.7 billion yuan or 19.5 billion yuan. Therefore, we lowered our 2024-2025 profit forecast to 7 billion and 8.6 billion (originally 19.9 billion and 231 billion), and added a net profit forecast of 10.7 billion yuan for 2026, corresponding PE is 8X, 6X, and 5X, respectively. According to comparable companies China Shenhua and Yankuang Energy's 2024 average comparable PE valuation, we maintained a “buy” rating.
On January 19, 2024, the company issued an announcement to receive the Shanghai Stock Exchange's “Decision on Supervising and Warning Ni Juan, the then-director of Guanghui Energy Co., Ltd.”. The penalty mainly targets the senior management level of listed companies and is not expected to have a significant impact on the profits of listed companies. Therefore, there is no significant impact on our assumptions, analytical estimates, and analytical conclusions regarding listed companies' profit forecasts.
Risk warning: Energy prices fluctuate greatly, the progress of projects under construction falls short of expectations, falling demand for products, and the Shanghai Stock Exchange's regulatory warning on corporate executives' irregularities may have a negative impact on stock prices, etc.