Incidents:

On April 26, 2024, Xinji Energy released its 2024 quarterly report: In the first quarter of 2024, the company achieved operating income of 3.06 billion yuan, +5.6% year on year, total profit of 91 billion yuan, +13.0% year on year, and net profit attributable to shareholders of listed companies reached 60 billion yuan, +0.6% year over year. The main reason for the growth rate of net profit to mother was lower than the total profit growth rate mainly due to a 5.2 pct year-on-year increase in income tax rate (2024Q1 income tax of 250 million yuan, +70 million yuan year on year), which is not attributable to listed companies Shareholders' net profit was 580 million yuan, -0.2% YoY. Basic earnings per share were $0.23, +0.44% YoY.

The weighted average ROE was 4.32%, down 0.99 percentage points year over year.

Investment highlights:

Coal business: Calorific value improved, gross profit per ton of coal increased significantly over the same period last year. In terms of production and sales, in the first quarter of 2024, the company achieved commercial coal production of 4.69 million tons, +4.7% YoY, -1.5%, commercial coal sales volume of 4.52 million tons, +1.6% month-on-month, -5.4% YoY, tonne coal sales price 575 yuan/ton, +7.3% YoY, tonne coal cost 347 yuan/ton, -15.4% month-on-month, +7.7% YoY. It is worth noting that the company's coal business has two advantages: 1) the proportion of Changxie coal is high (85%, as of September 2023), and the market price impact was small; 2) coal quality was improved, and the average calorific value of the company's coal returned to about 4400-4450 calors/g in July-August 2023, an increase of about 410-460 calors/g (an increase of about 10-12%) from the average calorific value of 3991 calors/g in the first quarter.

Electricity business: Power generation increased year-on-year. In the first quarter of 2024, power generation reached 2,462 billion kilowatt-hours, +27.1% year-on-year, and feed-in electricity reached 2,332 billion kilowatt-hours, or +27.9% year-on-year.

According to the 2023 Annual Report, the planned power generation capacity in 2024 will reach 11.5 billion kilowatt-hours, a steady increase from the 2023 power generation capacity of 10.4 billion kilowatt-hours.

Construction of two power plants has begun, and the integrated coal and electricity layout has been further improved. As of April 2024, the company held the Panji Power Plant (Phase I 2 x 1 million kW, Phase II 2 x 660,000 kW), Shangrao Power Plant (2 x 1 million kW), Chuzhou Power Plant (2 x 660,000 kW), Lu'an Power Plant (2 x 660,000 kW), wholly-owned Xinji 1 Power Plant and Xinji 2 Power Plant, with an installed capacity of 7.9 million kilowatts; it participated in Xuancheng Power Plant (1 x 63+1 x 660,000 kilowatts), with an installed capacity of 1.29 million kilowatts roof tiles. The total equity installed capacity is 5.631 million kilowatts. Of these, construction of the Shangrao Power Plant and the Chuzhou Power Plant began on March 26, 2024 and March 28, 2024, respectively. Assuming that in the future, with the exception of a small amount of external coal used for the Shangrao power plant, all other power plants will use their own coal after completion, we expect that the company's self-supply rate of coal may exceed 90% (by the end of June 2023, the self-supply rate is 40%), and the degree of upstream and downstream integration will continue to deepen, which will further guarantee stable profits.

Profit forecast and investment rating: We forecast that the company's 2024-2026 revenue will be 140.09/161.16/19..34 billion yuan, respectively, up 9%/15%/24% year on year, and net profit attributable to the parent company will be 23.58/25.25/ 2,813 billion yuan, up 12%/7%/11% year on year, equivalent to EPS of 0.91/0.97/1.09 yuan/share, respectively. The current stock price corresponds to PE 9.8/9.1/8.2 times, respectively. Considering that the company's share of coal is high and there is little fluctuation in performance, coal quality may gradually return to normal levels. At the same time, the degree of upstream and downstream integration of power assets will deepen after production, and stability will further improve, and maintain a “buy” rating.

Risk warning: risk of a sharp drop in coal market prices; risk of production safety accidents; risk of coal mine production progress falling short of expectations; risk of thermal power plant commissioning falling short of expectations; risk of policy regulation exceeding expectations.