Introduction to this report:

Production and sales declined sharply due to the reduction in production capacity in Hequ, with a 24-year production target of 33 million tons; prices declined year on year, judging that the decline in the second quarter narrowed; dividends in 23 fell short of expectations, probably due to considerations of increasing resource acquisition in 24.

Key points of investment:

Maintain an “Overweight” rating. The company announced its 2024 quarterly report. The company achieved operating income of 6.356 billion yuan (-40.31%) and net profit to mother of 583 million yuan (-65.81%), lower than market expectations. We maintained the company's 24-26 EPS of 2.44, 2.69, and 2.76 yuan, maintained a target price of 21.96 yuan, and maintained an “gain” rating.

Results fell short of expectations due to a sharp decline in production and sales, with a 24-year production target of 33 million tons. In the first quarter of 2024, the company achieved 7.51 million tons of raw coal production (-29.3%) and sales of commercial coal of 9.295 million tons (-25%), of which 5.46 million tons (-43.74%) of self-produced coal were sold. The sharp decline in production and sales is due to a marked decline in the company's self-produced coal production. The core is that the company's Hequ mine production capacity reduction dropped from 16 million tons/year to 10 million tons/year starting in 23Q3, and the “three super” high-pressure policies in Shanxi Province affected the production volume of enterprises in the region in the first quarter. The company's coal production target for the full year of '24 remains at 33 million tons. With the exception of Hequ, the target production target is the same as in 2023.

Prices declined year on year, judging that the decline in the second quarter narrowed. The average sales price of the company's own coal in the first quarter was 662 yuan/ton (-136 yuan/ton), the cost per ton was 308 yuan/ton (+7 yuan/ton), and the gross profit per ton was 354 yuan/ton (-144 yuan/ton). It is expected that after demand for electricity and coal recovers in mid-late May, prices will enter an upward channel, and the company's Q2 price decline is expected to narrow significantly.

The 2023 dividend was lower than expected, probably due to increased resource access in 2024. In 2023, the company announced a dividend of 0.65 yuan per share, with a dividend rate of 30%, which is slightly lower than market expectations. We judge that in '24, the company will consider increasing resources and continuing to add new resources, and the current high market price of coal mines makes the company tend to keep more profits. Judging that the company will increase the dividend rate to 60% in accordance with the dividend plan in '24.

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