Introduction to this report:

Lower prices and rising costs in the coal sector in the first quarter of 2024 reduced overall profits; profits in the coal chemical sector increased; and the dividend rate in 2023 was 53.1%.

Key points of investment:

Maintain an “Overweight” rating. The company announced the 2023 annual report, with revenue of 13.284 billion yuan (-6.16%) and net profit of 2,098 billion yuan (-34.93%), lower than market expectations; announced the 2024 quarterly report, with revenue of 2,232 billion yuan (-25.03%) and net profit of 135 million yuan (-82.55%). Taking into account the downward price and upward pressure on costs in the first quarter, EPS for 24 and 25 was reduced to 1.31 and 1.43 yuan (originally 2.36 and 2.47 yuan), and the additional 26-year EPS was 1.52 yuan. According to comparable companies' 24-year average valuation of 11.1xPE, the target price was raised to 14.54 yuan (+3.06 yuan).

Falling prices and rising costs in the coal sector in the first quarter of 2024 lowered overall profits. In 2023, the company produced 13.8 million tons of coal (+20.46%) and sold 12.41 million tons (+11.65%); the average annual sales price was 739 yuan/ton (-205 yuan/ton), and the ton cost was about 288 yuan/ton (-16 yuan/ton). In Q1 2024, the company sold 2.38 million tons (-110,000 tons) of coal at an average price of 631 yuan/ton (-275 yuan/ton), and the cost per ton was about 365 yuan/ton (+68 yuan/ton). We judge that the price of the company's main product, anthracite, is expected to gradually increase in price in the future, and the increase in production capacity will continue to increase. The period of maximum pressure on the company is over.

Profits in the coal chemical sector increased. In 2023, the company produced 9667,800 tons of urea (+18.92%) and sold 977,500 tons (+19.16%); 101,000 tons (-20%) of caprolactam (-20%), with sales of 101,100 tons (-19.63%); the gross profit of the chemical sector was 307 million, nearly doubling. 2024Q1 sold 193,400 tons of urea (-6.16%), caprolactam sold 25,400 tons (+2.83%), and the coal chemical sector had a gross profit of 85.86 million yuan. Key coal chemical projects are progressing in an orderly manner, laying a solid foundation for the company's industrial upgrading and transformation.

The 2023 dividend rate is 53.1%. The company's 2023 dividend rate was 53.1%, which is a significant increase from the promised 30% dividend. As capital expenditure falls, there is still room for improvement in dividends.

Risk warning: The macroeconomy fell short of expectations; coal prices fell more than expected.