Key points of investment:

Maintain an “Overweight” rating. The company announced its 2023 annual report. The company's revenue was 55.523 billion yuan (-14.82%) and net profit to mother was 6.771 billion yuan (-37.03%), which is in line with market expectations. Considering the decline in sales volume under the influence of Shanxi's “Three Supermarkets”, we lowered EPS in 2024 and 2025 to 1.12 and 1.32 yuan (originally 1.33 and 1.34 yuan), and added 1.48 yuan in 2026. According to the comparable company's 2024 average valuation of 11.1x PE, the target price was raised to 12.43 yuan (+2.43 yuan).

Coal production is growing steadily, but production may be pressured by safety supervision policies in 2024. In 2023, the company produced 46.08 million tons of raw coal (+5.09%), and the comprehensive sales price of commercial coal was 1,096 yuan/ton (-13.72%). The cost per ton was about 314 yuan/ton, a slight increase over the previous year, with a gross profit of 783 yuan/ton (-176 yuan/ton). The company's 2024Q1 sales may have declined due to the Shanxi Xi'an supervision policy, but considering the policy goals recently announced by Shanxi, production is expected to stabilize or even resume growth in the next three quarters. The moment of greatest pressure on the company has passed.

The bottom of the price of coking coal in April is clear, and the 24Q2 performance of leading companies is quite certain. Influenced by downstream steel, the bifocal industry has cut prices for 7 consecutive rounds since the beginning of the year, but the leading listed coking companies locked in 2,100 yuan/ton at 24Q2, which is significantly higher than the market price of 1,800 yuan/ton, making Q2 performance more stable.

Meanwhile, with the recovery of steel volume and price in mid-April, coking coal prices also regained their upward trend, and the bottom is clear.

The 23Q4 security policy led to an increase in cost accruals, and the 2023 dividend rate was 67%. The company's 23Q4 Changxie price was around 2,100 yuan/ton (+200 yuan/ton), but the overall performance remained flat month-on-month. It is speculated that management costs have increased due to the influence of safety supervision policies. The company's 2023 dividend rate is 67%, corresponding to a dividend rate of about 7%. The high dividend and high dividend value stand out.

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