Incidents:
On April 28, Huayang Co., Ltd. released its report for the first quarter of 2024: in the first quarter of 2024, the company achieved operating income of 6.16 billion yuan, -10.3% month-on-month and -26.5% year-on-year; realized net profit attributable to shareholders of listed companies of 870 million yuan, -4.5% month-on-month and -49.8% year-on-year; realized net profit without deduction of 780 million yuan, -7.8% month-on-month and -54.6% year-on-year.
Investment highlights:
The decline in Q1 performance was mainly due to falling coal market prices and a decline in the company's coal production and sales. However, the depreciation of the company's accounts receivable ($110 million) and the reduction in taxes and surcharges (a year-on-year decrease of 220 million yuan) contributed to a certain increase in performance.
Coal: Volume and price fell sharply, affecting first-quarter results. 2024Q1, the company achieved 8.5 million tons of coal production, -26.5% year on year; commercial coal sales volume was 8.28 million tons, -22.6% year over year. The comprehensive sales price of commercial coal was 589 yuan/ton, -13.4% year over year, unit cost was 361 yuan/ton, +5.5% year over year, unit gross profit was 227 yuan/ton, -32.7% year over year, gross margin fell 11 percentage points to 38.6%, and production and sales declined, driving up costs. Due to safety supervision and other factors, overall production in Q1 Shanxi decreased by 18.9% compared to the same period last year, and the company's output also declined accordingly. The volume and price of the coal sector fell sharply, affecting the company's performance in the first quarter. Production may gradually resume in the future as the nuclear emissions of the Pingshu mine and Yushupo mine increase (each core increases to 5 million tons/year) and the commissioning of the new Qiyuan mine.
Coal prices have rebounded steadily, and performance may be improving. Recently, the prices of thermal coal and anthracite have rebounded steadily. As of April 26, the final coal liquidation price at Qinhuangdao Port and the smokeless medium block board price in Yangquan were 824 yuan/ton and 1,180 yuan/ton respectively, up 23 yuan/ton and 150 yuan/ton respectively from recent lows (April 12). As coal prices improve, the company's performance is expected to improve.
Profit forecast and valuation: Considering the company's coal production and price changes, we adjusted the company's profit forecast. The company's revenue for 2024-2026 is 254/283/29.8 billion yuan, respectively, and net profit to mother is 40.16/45.94/5.012 billion yuan, respectively, -22/+14/ +9% year on year; EPS is 1.11/1.27/1.39 yuan, respectively, corresponding to the current stock price PE is 8.37/7.32/6.71 times. The company's main coal business is steady, and the cost control effect is obvious. The number of new mines is still being built. The new energy business is progressing smoothly, future growth can be expected, and it maintains a “buy” rating.
Risk warning: risk of a sharp drop in coal prices; risk of production safety accidents; risk of mine construction and production progress falling short of expectations; risk of technology research and development progress in transformation business falling short of expectations; risk of downstream demand in the transformation business falling short of expectations, etc.