Finance Association, April 23 (Reporter Wu Yuqi) On the one hand, stock prices are rising and institutions are optimistic, but on the other hand, performance is declining and coal prices are falling. Can coal stocks still start?

Entering 2024, the coal sector showed a strong side. By the close of trading on April 22, the China Securities Shenwan Coal Index had risen 15.20% during the year. In terms of individual stocks, China Shenhua, a coal company, rose 28.55% during the year, Shenhuo shares rose 36.19%, and coal stocks such as Shaanxi Coal and China Coal Energy rose more than 20%.

However, judging from the first-quarter report cards recently handed over by coal stocks, the performance of many listed coal companies has experienced “Waterloo,” including Shanxi Coking, Shenhuo Co., Ltd., and Orchid Science and Technology Innovation, etc., all of which have declined markedly. Due to performance falling short of expectations, the Shenwan Coal Index plummeted by more than 4% on the 22nd, and the main capital of 1,546 billion yuan was withdrawn from the coal sector. Among them, the top net capital outflows were Pingmei Co., Ltd., Jizhong Energy, and Yankuang Energy. The net outflows were 212 million yuan, 184 million yuan, and 164 million yuan respectively.

Even so, a number of brokerage firms have published research reports that are optimistic about the coal industry. For example, Dongwu Securities said that after the disclosure of the quarterly report at the end of April, the downside was released; in May, as coal prices strengthened, opportunities for sector investment and allocation came; considering entering the peak season for traditional thermal coal, they analyzed that coking coal prices will follow the rise in thermal coal prices, but thermal coal prices are more flexible.

According to the Open Source Securities Research Report, the coal sector is expected to welcome the starting point of a rearrangement. This round of investment combines high dividends and cyclical flexibility, and is expected to attract more capital allocation than the previous round. The cyclical flexible investment logic of coal stocks will also be repeated. Currently, the prices of both thermal coal and coking coal have bottomed out and rebounded, and the judgment is that they will still be in an upward channel. As the fundamentals of supply and demand continue to improve, the two types of coal will still have upward elasticity, and the space for both types of coal will increase significantly.

The performance of many coal stocks was “thundered”

On April 22, a number of coal stocks disclosed their first-quarter reports. Statistics showed that many relevant listed companies showed a trend of “both net revenue and profit declines.” For example, Shenhuo Co., Ltd. achieved operating income of 8.223 billion yuan in the first three months of this year, a year-on-year decrease of 13.57%; net profit to mother was 1,091 billion yuan, a decrease of 29.47% over the previous year.

The biggest decline in performance was between Shanxi Coking and Orchid Science and Innovation. The former achieved the company's revenue of 1,821 billion yuan, a year-on-year decrease of 26.18%; net profit of 658.24,800 yuan, a sharp drop of 91.37% year on year; the latter achieved operating income of 2,232 billion yuan, down 25.03% year on year. Net profit attributable to mother was $135 million, a year-on-year decrease of 82.55%.

Meanwhile, Lu'an Huanneng, which previously disclosed its quarterly report, achieved revenue of 8.659 billion yuan, a year-on-year decrease of 27.19%. Net profit attributable to mother was 1,288 billion yuan, a year-on-year decrease of 61.90%.

Looking at the situation for the whole of last year, the performance of many coal stocks can only be described as “miserable.” Shenhuo Co., Ltd. achieved operating income of 37.625 billion yuan, a year-on-year decrease of 11.89%; net profit to mother in 2023 was 5.905 billion yuan, a year-on-year decrease of 22.07%.

As mentioned above, Shanxi Coking achieved operating income of 8.749 billion yuan for the full year of last year, a year-on-year decrease of 27.54%; net profit attributable to shareholders of the parent company was 1,275 billion yuan, a year-on-year decrease of 50.61%, and net profit fell short! Orchid Science Innovation's revenue was about 13.284 billion yuan, down 6.16% year on year; net profit to mother was about 2,098 billion yuan, down 30% year on year.

In addition, China's Shenhua, Zhengzhou Coal and Electricity, Lu'an Huaneng, Antai Group, Baotailong, and other coal companies' profits fell by 14.29%, 53.22%, 44.11%, 128.12%, and 120.08% year on year, respectively. The rate of decline was obvious, and even some coal stocks were already losing money.

When asked why, listed companies all explained in their annual reports. For example, Shanxi Coking Coal pointed out that in 2023, the steel industry as a whole was operating in a weak market. Affected by this, coke prices fell year on year, while coal prices operated at medium to high levels throughout the year. The double squeeze of the year-on-year decline in coke market prices and high operation in raw coal prices led to a marked decline in the efficiency of enterprises in the coking industry.

Orchid Science and Technology Innovation said that the main reason for the decline in performance was that the coal market price dropped significantly compared to the same period last year, the company's external mining insurance supply increased, and the high cost of excavation and development expenses for new integrated mines.

It is easy to see that the decline in coal companies' performance is closely related to coal market prices. A coal expert told reporters, “It is easy to find that the reason for the decline in the performance of listed coal companies is due to a shift in the focus of coal prices. The price of raw coal is running at a medium to high level, but the decline in market sales prices will inevitably cause a compression in the profits of coal companies.”

Judging from the trend in coal prices, domestic coal prices have shown a downward trend for 2 consecutive months since peaking in late February, and the suppression has affected market expectations. The spot price of thermal coal in ports has dropped from a low of 940 yuan/ton in the week ending February 23 to 801 yuan/ton in the first week of April, falling nearly 140 yuan per ton, with a range drop of about 15%.

A market source also commented, “The boom in the strong cycle industry has been maintained for a limited time. For example, coal has been rising continuously for three years, and performance and stock prices are about to reach an inflection point.”

A number of fund managers increased their coal holdings in the first quarter

The performance of coal stocks has declined frequently. Admittedly, many fund managers are still flocking in, including many well-known fund managers. What's the logic of adding positions at the moment?

For example, Wanjia Fund Huanghai, the fund manager won the active equity fund championship in 2022 by investing heavily in the coal industry and managing products Wanjia Selected. As of the first quarter of this year, the total amount of funds managed by the Yellow Sea was 6.595 billion yuan. Compared with the 3.443 billion yuan at the end of 2023, the size has almost doubled.

In terms of holdings, Huanghai continued to increase its coal holdings in the first quarter, drastically increasing its holdings of Huaibei Mining, China Coal Energy, Huayang shares, Guanghui Energy, Shanmei International, and Lu'an Huaneng; Xinji Energy was newly selected as one of the top ten heavy-held stocks, and Bank of Ningbo withdrew from the top ten heavy-held stocks at the end of the fourth quarter of 2023.

In terms of position adjustment logic, Huang Hai said, “Under the macroeconomic environment at home and abroad this year, it is still judged that coal stocks with low debt and high cash flow have high safety and scarcity; at the same time, once domestic infrastructure investment rebounds steadily, domestic cyclical products with low inventories will usher in better upward price elasticity, and will actively balance the defensive and offensive nature of the combination, so as to adapt to changes in the macro cycle and achieve steady increase in net value.”

Ye Yong, who is also a member of Wanjia Foundation, also increased its position on coking coal from Shanxi. The new Wanjia Twin Engine stock he manages is one of the top ten largest stocks. According to Ye Yong, as the main energy source for developing economies, coal will remain the backbone until 2030, and coal consumption will also grow steadily. Judging from the current production capacity investment situation, the main potential for additional production capacity is in Xinjiang and Inner Mongolia, but too long transportation distance will cause coal prices to maintain a high lower limit in the medium to long term, so that coal stocks can continue to maintain a high level of profit. Despite being affected by long-term bargaining regulations, price elasticity is manageable, but stable profit expectations and high dividends will steadily raise the valuation level of coal stocks.

Overall, according to the quarterly report that has been disclosed so far, a total of 30 coal stocks were heavily held by public funds in the first quarter. Of these, China Shenhua was heavily held, and 378 funds held the most. Among them, the Huatai Berry Dividend ETF held 15.5021 million shares. In terms of active equity funds, Yinhua Wealth Theme A managed by Jiao Wei held 10.5513 million shares, and Southern Performance Growth A managed by Shi Bo and Luo Shuai held 7.023 million shares.

As mentioned above, Shanxi Coking was heavily invested by 2 funds in the first quarter, namely Taixin Competitive Choice and Taixin Blue Chip Select managed by Xu Muhao, which held 4.89 million shares and 3.6 million shares. Of these, Taixin Competitive Choice increased its position by 690,000 shares in the first quarter.

Orchid Science and Technology Innovation, on the other hand, is heavily held by 8 funds. The maximum number of shares held by China Merchants China Securities Coal was 2.7983 million shares. Many funds bought the new shares in the first quarter, such as Huiquan Strategic Choice A managed by Liang Yongqiang and Zeng Wanping, the Chinese Business Theme Selection managed by Wu Wenyou, the leading Chinese businessman advantage, Xu Wei's Zhongke Vorui A, and Wanjia Guosheng 2000 Index Enhancement A.

Lu'an Huanneng is heavily held by funds such as Wanjia Macro Time-Selection Strategy A, Wanjia Select A, and Wanjia Xinli managed by Huanghai, which are 10.3834 million shares, 7.6674 million shares, and 4.082 million shares, respectively. In addition, Li Jinwen's Southern Ingenuity Choice A, Zhang Yifei, and Li Jun's Anxin Steady Value-added A held a large number of shares, amounting to 9.5031 million shares and 7.9729 million shares.