Incidents:
On April 26, 2024, Hengyuan Coal and Electricity released its 2024 quarterly report: In the first quarter of 2024, the company achieved operating income of 2.05 billion yuan, -8.3% year on year, realized net profit attributable to shareholders of listed companies of 430 million yuan, -29.1% year on year, and realized net profit of 430 million yuan after deduction, or -27.6% year over year.
Investment highlights:
Coal business: Prices have been raised and costs have been reduced, and profits have increased significantly from month to month. In the first quarter of 2024, the company's commercial coal production was 1.949,000 tons, +4% month-on-month, +12% year-on-month, commercial coal sales volume was 1.917,000 tons, +3% month-on-month; the sales price of tons of coal reached 1,017 yuan/ton, +12% month-on-month, -5% year-on-month, and the comprehensive cost of tons of coal was 561 yuan/ton, -1% month-on-month, -3% year-on-month, and the gross profit of the coal business achieved 8.77.7% month-on-month, +38% month-on-month YoY -10.0%.
The company has a complete range of coal, basic coverage of the Changxie Association, and stable price fluctuations. The company is a state-owned coal enterprise in Anhui Province. The controlling shareholder is Anhui North Anhui Coal and Electricity Group (holding 54.95% of the shares, as of the end of March 2024). It has a complete range of products such as thermal coal, jet refined coal, coking and coal blending, etc., with a total production capacity of 10.95 million tons. By the end of 2023, there were 560 million tons of recoverable reserves. In terms of the price mechanism, the price is mainly implemented, and the price fluctuation is relatively stable. Among them, the price of thermal coal is adjusted monthly according to the price pricing mechanism of the National Thermal Coal Association. The principle is that refined coal determines the Changxie price by referring to surrounding coal companies and market prices, and is adjusted quarterly.
There may be room for growth in coal production capacity. According to the company's relevant information, the controlling shareholder, Anhui North Anhui Coal and Power Group, is rich in coal mining resources, including Ma Diliang (10 million tons/year) and Zhaoxian Mine (2.4 million tons/year). Previously, the group had relevant promises to inject coal mine assets into listed companies, and the company's coal production capacity may increase in the future.
Installed electricity has increased markedly. As of January 2024, the company has three power plants with comprehensive resource utilization, with a total installed capacity of 66MW; Qianyingzi Power Generation Co., Ltd. currently has two 350MW units; Suzhou Thermal Power Co., Ltd. has an installed capacity of two 350MW units, and the company holds 21% of the shares. There will still be growth in the future: 1) The Qianyingzi Phase II project under construction has an installed capacity of 1000 MW. After completion, the total installed capacity of Qianyingzi Company will reach 1,700 MW (the company holds 50% of the shares), which is expected to be completed by the end of 2024; 2) Anhui Heng New Energy Company, which is currently constructing a 300MW wind power project. The company holds 46% of the shares and is expected to be completed in 2025.
n Cash cows have outstanding attributes. 1) The company has strong profitability, with a lot of cash on its accounts. The company's weighted return on net assets in 2023 was 16.7%, and monetary capital was 7.46 billion yuan (as of March 2024); 2) Good debt side, low debt pressure. The current balance ratio of the company is only 38.8% (as of March 2024). Financial expenses in 2023 were only 0.3 million yuan, accounting for 0.43% of revenue; 3) High dividends, with a total dividend ratio of 1.02 billion yuan in 2023, equivalent to 0.85 yuan per share (tax included), corresponding Dividend rate 6.6% (close on April 29).
n Profit forecast and investment rating: We forecast that the company's 2024-2026 revenue will be 75.6/78.2 billion yuan, respectively, -3%/+3%, and net profit attributable to the parent company will be 19.7/20.9/2.17 billion yuan respectively, up -3%/+6%/+3% year-on-year, equivalent to EPS of 1.64/1.74/1.80 yuan/share, respectively, and current stock price corresponding to PE is 8/7/7 times, respectively. Considering the company's high share of coal and little fluctuation in performance, the Group's coal assets are likely to be injected, and there is great potential for endogenous growth. The second phase of the Qianyingzi Power Plant is about to be put into operation and will become another point of growth in performance. The company's cash cow attributes are outstanding, the debt pressure is low, and the dividend ratio is high. It was covered for the first time, giving it an “increase in holdings” rating.
n Risk warning: risk of a sharp drop in coal market prices; risk of production safety accidents; risk of uncertain injection into group coal mines; risk of falling short of expectations in thermal power plant commissioning; risk of policy regulation exceeding expectations.