Incident: On April 26, 2024, China Shenhua released its 2024 quarterly report. In the first quarter of 2024, the company achieved operating income of 87.647 billion yuan, a year-on-year increase of 0.7%, and realized net profit of 15.884 billion yuan, a year-on-year decrease of 14.7%; net profit after deduction was 16.460 billion yuan, a year-on-year decrease of 11.2%. Net cash flow from operating activities was 28.553 billion yuan, down 2.2% year on year; basic earnings per share were 0.799 yuan/share, down 14.7% year on year. The balance ratio was 23.57%, down 0.52 pct from month to month.
Comment:
Coal sector: There was a slight increase in sales volume and an increase on the cost side, leading to a decline in profits. In the first quarter of 2024, the company achieved coal production of 801.3 million tons, an increase of 1.5% year on year, and coal sales volume of 117 million tons, up 8.8% year on year. Looking at the sales structure, the share of long-term cooperation, monthly long-term cooperation, and spot sales in Q1 2024 was 50.0%, 31.3%, and 13.8%. Among them, the share of the annual long-term association decreased by 7.5 pcts year-on-year. In terms of sales prices, the company's annual Changxie price was 490 yuan/ton, down 1.4% year on year; the monthly Changxie price was 737 yuan/ton, down 17.3% year on year; the average price of coal was 573 yuan/ton, down 7.7% year on year; the high proportion of Changxie effectively averted fluctuations in coal prices. On the cost side, the cost of a single ton of self-produced coal in Q1 in 2024 was 190.6 yuan/ton, up 12.5% year on year, mainly due to a low base for the same period last year, a sharp increase in labor costs (+106.3%) due to a sharp increase in labor costs in the first quarter of 2024 (+106.3%), a decrease in excavation in some well mines, and a year-on-year decrease in material costs (-8.3%). In Q1 2024, the overall revenue of the coal sector was 69.285 billion yuan, up 0.5% year on year; total realized profit was 13.406 billion yuan, down 23% year on year.
Electricity sector: Strong increase in electricity sales leads to profit growth
In 2024, Q1 achieved a total power generation capacity of 55.35 billion kilowatt-hours, an increase of 7.0% over the previous year. The total sales volume of electricity was 52.16 billion kilowatt-hours, an increase of 7.0% over the previous year, and power generation and electricity sales increased sharply. In the first quarter of 2024, the average number of hours used for domestic coal-fired power generation was 1,254 hours, down 3.1% year on year. The price of coal-fired electricity was 406 yuan/megawatt-hour, down 2.4% year on year. The installed capacity of power generation was 44,801 megawatts. The increase was due to the addition of 87 megawatts of installed photovoltaic power generation and 80 megawatts of additional installed capacity of coal-fired power generation.
Despite the decline in electricity prices, the sharp increase in electricity sales led to revenue in the electricity sector reaching 24.075 billion yuan, an increase of 5.3% year on year; total profit of 3.188 billion yuan, up 11.1% year on year; and gross margin increased by 0.8 pct.
Transportation and coal chemical sector: transportation port business profit growth
In 2024, the revenue of the railway division of Q1 Company increased 5.9% year on year, operating costs increased 2.5% year on year, and total profit increased 16.7% year on year; the port division's revenue increased 5.6% year on year, and the cost side fell 4.5% year on year, resulting in a total profit increase of 15.3% year on year; the shipping division's revenue increased 7.4% year on year, and the total profit level surged 121.7%; the coal chemical division's revenue decreased 1.1% year on year, and total profit decreased 5.9% year on year.
Promote the continuation of coal resources in an orderly manner, and the Group's resource injection helps the main business grow. As of March 22, 2024, the first and second wells of Xinjie in the Taigemiao mining area of Xinjie, Inner Mongolia, which are important for the continuous development of the company's coal resources, have obtained mining licenses. Fulianta Coal Mine, Shangwan Coal Mine, Wanli Mine, and Haerusu Open Pit Mine have completed changes in the scope of mining rights and obtained new mining licenses. The Baode coal mine production capacity was raised from 5 million tons/year to 8 million tons/year, and applications for nuclear capacity increases in coal mines such as Li Jiahao and Shengli No. 1 open-pit mine are progressing in an orderly manner.
Profit forecast and investment rating: We believe that with the marginal improvement in demand brought about by economic stimulus policies, the coal price center is expected to remain medium to high; at the same time, the electricity consumption of the whole society continues to rise high, and the sharp rise in the company's electricity consumption and electricity prices is expected to continue, supporting a steady increase in profitability. The company's high long-term cooperation ratio and integrated operation make the business performance highly deterministic. Combined with high cash and high dividend attributes, the future investment value is expected to be more prominent. We expect the company to achieve net profit of 617.79/642.91/66.118 billion yuan in 2024-2026, and EPS of 3.11/3.24/3.33 yuan/share, maintaining a “buy” rating.
Risk factors: There is uncertainty about the macroeconomic situation; geopolitical factors affecting the global economy; uncertainty about coal and electricity-related industry policies; production safety accidents in coal mines, etc.