Description of the event

The company released its 2023 annual report & 2024 first quarter report: in 2023, the company achieved total operating income of 43.137 billion yuan, -20.55%; realized net profit of 7.922 billion yuan, or -44.11%; net profit after deducting non-return to mother of 7.889 billion yuan, -45.11%; net cash flow from operating activities of 8.852 billion yuan, -73.79% year on year; basic earnings per share of 2.65 yuan/share, ROE (weighted) of 16.37%, a year-on-year decrease of 17.62 percentage points. Q1 2024 revenue was 8.659 billion yuan, -27.19% YoY; net profit to mother was 1,288 billion yuan, -61.90% YoY; net profit after deduction was 1,285 billion yuan, -61.73% YoY.

Incident reviews

The fall in coal prices will affect the business environment in 2023. According to wind data, in 2023, the average price of coal truck plates in Changzhi was 1,332 yuan/ton, -25.44%; the average price of primary metallurgical coke in Changzhi was 2,265 yuan/ton, -23.62% year-on-year; the price of metallurgical coal dropped significantly. The average price of the Changzhi thermal coal (Q5500) vehicle plate was 977.3 yuan/ton, -25.89%; the average annual price of the Qingang Changxie Association was 713.83 yuan/ton, -1.09% year over year; the price center of thermal coal also declined.

Production and sales increased year-on-year in 2023, but gross profit per ton of coal declined with coal prices. In 2023, the company achieved 60.46 million tons of raw coal production, +6.26% year over year; commercial coal sales volume was 54.98 million tons, +3.85% year over year. The comprehensive sales price of tons of coal reached 727.66 yuan/ton, -21.81%; the comprehensive cost of tons of coal was 347.69 yuan/ton, -3.27% year-on-year; gross profit of tons of coal reached 379.97 yuan/ton, or -33.48% year-on-year. The company implemented an increase in coal production and supply, and the reasonable release of high-quality production capacity brought about a steady increase in coal production and sales. However, the decline in coal prices led to a decline in coal sector revenue of 40.05 billion yuan, -18.81% year-on-year; the gross profit margin was 52.22%, a decrease of 9.16 percentage points over the previous year. In terms of coke, the output was 1,2571,000 tons, a year-on-year change of -26%; mainly affected by the optimization of the production capacity structure; sales volume was 1,236,800 tons, -27.34%; the average sales price of coke reached 2,260.3 yuan/ton, -19.17% year over year, cost was 2615.18 yuan/ton, -5.84% year over year, and gross profit per ton of coke was 355 yuan/ton, a year-on-year decrease of 374 yuan/ton.

Production and sales declined in 2024 Q1, but the price of tons of coal and gross profit increased month-on-month. Affected by marginal changes in safety supervision policies and insurance and supply policies such as the “Three Supermarkets”, the company achieved raw coal production in Q1 2024 of 13.24 million tons, -9.93%; change of -16.41% month-on-month in 2023Q4; commercial coal sales volume of 11.81 million tons, -7.08%, -18.94% month-on-month; comprehensive sales price of tons of coal was 689.42 yuan/ton, -20.69%, +5.87% month-on-month; gross profit per ton of coal was 311.63 yuan/ton, -39.86% month-on-month, +6.89% month-on-month. Benefiting from the recovery in coal prices since 2024, the company's gross profit of Q1 tons of coal increased. The decline in the company's Q1 production and sales was mainly affected by the safety supervision policy of Shanxi Province, but the company plans to continue promoting production capacity expansion projects at 4 mines including Yida, Heilongguan, Heilongguan, and Cilin, while actively bidding for additional resources. In addition, Lu'an Mining Group, the controlling shareholder of the company, still has a large stock of mines, and can be injected into the company when conditions are ripe in the future, enabling the company to achieve epitaxial growth.

The high-percentage dividend policy continues, and the dividend rate is still high. The company simultaneously announced the 2023 profit distribution plan: the company plans to pay 15.89 yuan (tax included) for every 10 shares to all shareholders, totaling about 4.753 billion yuan (tax included), accounting for 60% of net profit attributable to mother in 2023. Based on the closing price of 21.87 yuan/share on April 22, the company's current dividend rate is 7.27%, which is still attractive in the current low deposit interest rate environment.

Investment advice

The company's 2024-2026 EPS is expected to be 2.39\ 2.62\ 2.86, respectively, corresponding to the company's closing price of 21.87 yuan on April 22, and 9.2\ 8.3\ 7.7 times PE in 2024-2026; considering the rebound in metallurgical injection coal prices since 2024, the company's future profit scale is still impressive; and individual stocks with high dividends and high dividends are still attractive in a low interest rate environment. We will continue to give the company an “increase holdings -A” investment rating.

Risk warning

Risk of macroeconomic growth falling short of expectations; risk of coal prices falling beyond expectations; risk of security generation; risk of production capacity falling short of expectations, etc.