Incident: Shaanxi Coal Industry released its 2023 annual report: In 2023, the company achieved operating income of 170.872 billion yuan, a year-on-year increase of 2.41%, net profit to mother was 21.239 billion yuan, a year-on-year decrease of 39.67%, and net profit after deduction was 24.680 billion yuan, a year-on-year decrease of 16.89%. Basic earnings per share were 2.19 yuan, a year-on-year decrease of 39.67%. The weighted average return on net assets was 20.73%, a year-on-year decrease of 12.57pct.
In the first quarter of 2024, the company achieved total operating income of 40.449 billion yuan, a year-on-year decrease of 9.73%, a year-on-month decrease of 6.88%, net profit of 4.652 billion yuan, a year-on-year decrease of 32.69% and a decrease of 8.06% month-on-month; net profit to mother after deduction was 5.354 billion yuan, a decrease of 26.33% year-on-year and 5.81% month-on-month.
Comment:
The volume of coal business rose and fell, and the share of traded coal increased. 1) Production and sales volume: According to the company's 2023 annual report, the company's commercial coal production in 2023 was 164 million tons (+4.10% year over year); the company's commercial coal sales volume was 253 million tons (+12.60% year over year), including 164 million tons of self-produced commercial coal (+5.27% year over year) and 895.415 million tons of trade coal (+29.04% year over year). According to the company's 2024 quarterly report, 2024Q1's commercial coal production was 41.4547 million tons (YoY +1.49%), with sales volume of 61.463 million tons (YoY +9.16%), of which sales volume of self-produced coal was 409.11 million tons (+1.17% YoY) and sales volume of trade coal was 205.563 million tons (YoY +29.53%). 2) Price and cost: The average sales price of the company's commercial coal in 2023 was 596.10 yuan/ton (-13.04% YoY), of which 574.52 yuan/ton of self-produced coal (-14.12% YoY) and 635.56 yuan/ton of trade coal (-12.03% YoY). The average operating cost of the company's commercial coal was 405.00 yuan/ton (+1.68% YoY), of which the average operating cost of self-produced coal was 256.25 yuan/ton (+7.52% YoY), mainly due to increased safety-related expenses; the average operating cost of trade coal was 676.90 yuan/ton (-10.56% YoY), mainly due to the decline in coal prices. 3) Profit: In 2023, commercial coal achieved gross profit of 246.67 yuan/ton of coal per ton (-24.03% YoY), of which gross profit per ton of coal produced in-house was 376.77 yuan/ton (-18.75% YoY) and 8.86 yuan/ton of coal traded (-32.33% YoY).
In 2023, the company's coal business achieved revenue of 165.016 billion yuan (+1.50%), operating costs of 102,554 billion yuan (YoY +14.50%), gross profit of 62,462 billion yuan (-14.45% YoY), and gross margin of 37.85% (year-on-year decrease of 7.06 pct).
Capital expenditure declined year on year, and capital investment helped release production capacity. According to the company's 2023 annual report, the company's capital expenditure plan for 2024 was 2,333 billion yuan (-48.43% YoY). 1) The Xiaobodang wind well and coal processing plant project plans to invest 330 million yuan, and the main construction project will be completed in the fourth quarter. 2) The Shenwei Pipeline Coal Slurry Additives and Reclaimed Water Comprehensive Utilization Project plans to invest 252 million yuan. The installation of pipelines and pressurized pumps was completed in the fourth quarter, and the machinery was completed. 3) Binchang Hujiahe No. 2 and Lijiagou wind well projects plan to invest 435 million yuan. The construction of the Hujiahe No. 2 wind well lift house and wellhead house was completed in the fourth quarter, and the upgrade system was formed. The installation of the Lijiagou wind well lifting computer room in Wenjiapo was completed, the construction of the wellhead room was completed, and the upgrade system was formed.
The cash dividend ratio is 60%, and the dividend rate is 5.21%. In terms of dividends, according to the company's 2023 profit distribution plan, it is proposed to distribute a cash dividend of 1.315 yuan (tax included) per share. The total cash dividend amount (tax included) is 12.749 billion yuan (tax included). Based on the closing price of 25.22 yuan/share on April 25, 2024, the dividend ratio is 5.21%, accounting for 60.03% of the company's net profit to the mother in 2023.
Profit forecasting and investment advice. We recommend the Shaanxi coal industry based on the following three aspects: 1) The mining area where the company is located is rich in coal reserves, excellent quality, and few natural disasters. 2) The company's coal mine has an approved production capacity of 162 million tons, forming a “China looks at Shaanxi coal” strategic pattern. 3) The company's performance is resilient, and shareholder dividends are guaranteed for steady operation. We expect that in 2024-2026, the company will achieve operating income of 175.483 billion yuan, 181,881 billion yuan, 188.80 billion yuan, net profit due to mother of 21,451 billion yuan, 21,808 billion yuan, 21,956 billion yuan, EPS (diluted) of 2.21 yuan, 2.25 yuan, 2.26 yuan, corresponding PE of 11.4x/11.2x/11.1x with a closing price of 25.22 yuan/share on April 25, 2024, maintaining the company's “increase in holdings” rating.
Risk warning: Safety and environmental protection policies are getting stricter, coal prices are falling systematically, downstream demand falls short of expectations, and production safety accidents occur in key coal mines