Q1 Performance was under pressure due to both volume and price reductions. Focus on new production capacity and high dividends, and maintain a “buy” rating

The company released its 2024 quarterly report. 2024Q1 achieved operating income of 6.356 billion yuan, -40.3%, and -25% month-on-month; realized net profit of 583 million yuan, -65.81% year-on-year, +110% month-on-month; realized net profit after deduction of 603 million yuan, -65% year-on-year and +71.9% month-on-month. We maintain the company's profit forecast for 2024-2026. We expect the company to achieve net profit of 41.2/47.8/5.45 billion yuan in 2024-2026, or -3.2%/+15.9%/+14.0% year-on-year; EPS is 2.08/2.41/2.75 yuan, respectively; corresponding to the current stock price PE is 6.8/5.9/5.2 times. Considering that the release of the company's production capacity is progressing smoothly, production is still climbing, the company's profit is expected to stabilize, the combined dividend ratio is expected to increase, and the company's long-term investment value is prominent. Maintain a “buy” rating.

Coal production and sales declined year-on-year, and profits declined due to a correction in the price of tons of coal (1). Coal production and sales declined year on year: in the first quarter, the company achieved 7.515 million tons of raw coal production, -29.3% year on year, and achieved commercial coal sales of 9.295 million tons, or -25.1% year on year. Among them, self-produced coal sales fell sharply year on year. 2024Q1 sold 5.462 million tons, -43.7% year on year, trade coal sales volume was 3.833 million tons, +41.9% year on year. 2024Q1 Affected by factors such as the stricter safety supervision situation and the “top three” management of coal mines in Shanxi, the operating rate of coal mines in Shanxi has been low since 2024. From April 8 to April 14, the operating rate of 442 coal mines in the three provinces of Jinshan, Shaanxi, and Mongolia was 81.8%. Among them, the operating rate of coal mines in Shanxi Province was 67.8%, which is significantly lower than other major production areas. Combined with factors such as the Spring Festival holiday, the company's coal production and sales declined year on year. (2) Profit declined due to the correction in the price of tons of coal: the 2024Q1 company's commercial coal price was 667.2 yuan/ton, -21.3%, of which the price of a ton of coal produced by itself was 662.3 yuan/ton, -17.1%, and the price of a ton of trade coal was 674.1 yuan/ton, or -34.2%; the cost of a ton of coal produced in-house was 448.2 yuan/ton, +0.8%, of which the cost of a ton of coal produced in-house was 30yuan/ton, +2.4% year-on-year; 2024Q1 Affected by the correction in coal prices, the gross profit of 2024Q1's commercial coal tons was 219 yuan/ton, -45.7%, of which the gross profit from self-produced coal tons was 353.9 yuan/ton, -28.9% year-on-year, and 26.6 yuan/ton of coal traded, or -58% year-on-year.

Coal production capacity is released in an orderly manner, and the dividend ratio is expected to increase

(1) The orderly release of coal production capacity has helped increase performance: Currently, the Hequ open-pit coal industry has successfully completed the process of increasing production capacity of 10 million tons/year, and is steadily advancing the nuclear increase of 16 million tons/year; in 2023, Xinshun Mine (1.8 million tons/year) and Zhuangzihe Coal Mine (1.2 million tons/year) have been put into operation one after another and have officially entered the coal mining stage. Currently, production growth is expected to increase further in the future. (2) The dividend ratio of high-dividend strategies is expected to increase: the company's dividend ratio in 2023 is 30.3%, corresponding to the current dividend rate of 4.6%. According to the “2024-2026 Shareholder Return Plan” issued by the company, if the company's distributable profit for the year is positive, the audit report standard is unqualified, the major investment plan or cash expenditure reaches or exceeds 30% of the company's most recent audited total assets, and exceeds RMB 50 million, the company plans to distribute profits in cash for each year 2024 to 2026 of not less than 60% of the distributable profit achieved in that year. As the company's production capacity is gradually released, the company's profit is expected to stabilize. Combined, the dividend ratio is expected to increase in the future, and the company's long-term investment value is highlighted.

Risk warning: Economic growth is lower than expected; risk of falling coal prices; coal production and sales fall short of expectations.