Report summary:
A state-owned coking coal enterprise in East China, operating steadily and with high dividends. The company is a state-owned coking coal enterprise in Anhui. The coal business accounts for more than 90% of revenue. The decline in coal prices in '23 led to a decline in the company's performance. The company achieved revenue of 7.786 billion yuan in 2008, down 7.24% year on year; net profit to mother was 2,036 billion yuan, down 19.43% year on year; the company operated steadily, and the profit decline was lower than that of most coking coal listed companies. The company's cash flow is abundant and the capital structure continues to improve. At the end of '23, the company's balance ratio was 40.34%, down 2.55pct from the end of '22. The company has maintained a high level of dividends for the past four years. The company's proposed dividend rate in '23 is 50%, up 2 pcts from '22.
Coking coal supply and demand are tightening, and coking coal prices are expected to rise. Scarce resources and insufficient capital expenditure have affected the supply of coking coal for a long time. Stricter safety regulations have further limited the release of coking coal production this year. 2024Q1 domestic coking coal production was 108 million tons, down 13.7% year on year, coking coal imports were 26.89 million tons, up 20.7% year on year, and total coking coal supply was 135 million tons, down 9.4% year on year. The countercyclical adjustment policy for real estate continues to increase. The issuance of trillions of special treasury bonds and the acceleration of local special bonds drive infrastructure investment. The inventory replenishment cycle between China and the US and the continuous upgrading of China's high-end manufacturing industry are driving up the growth rate of investment in the manufacturing industry. Demand for coking coal is expected to continue to improve. It is expected that coking coal prices will usher in a new upward cycle.
The Group's asset deposit may be injected, benefiting from the increase in coking coal prices. The company has an approved annual coal production capacity of 10.95 million tons. The Group has granted the company irrevocable acquisition rights over a number of group assets, and it is possible to inject a total of 1.8 million tons of approved production capacity of the Group's coal assets other than listed companies. In 2023, the company sold 2.88 million tons of refined coal and 3.93 million tons of mixed coal. The company's mixed coal is sold at long-term coking coal prices. Refined coal is determined by referring to surrounding coking coal companies and market prices, and is expected to benefit from coking coal price increases in the future.
Actively expand thermal power, new energy power generation and gypsum mining businesses. In November 2022, the company increased its capital by 474 million yuan to build the Qianyingzi Power Plant Phase II 1000MW supercritical coal-fired generator project. It will be completed and put into operation by the end of 24. At that time, the installed capacity of the thermal power business will reach 1,050 MW, an increase of 90.8% over the end of 2023. In March 2023, the company invested 441.6 million yuan to jointly invest in the establishment of Suzhou Wanheng New Energy Co., Ltd. The first phase of the project is expected to be completed in 2025.
In 2021, the company acquired Hengtai New Materials Co., Ltd. to lay out the gypsum mining business.
Profit forecast and investment advice: The company's total revenue for 24-26 is estimated to be 79.2/85.3/8.97 billion yuan, respectively, up 1.72%/7.70%/5.16%; net profit to mother is 20.37/23.72/2,566 billion yuan, up 0.05%/16.43%/8.20% year on year; EPS is 1.70/1.98/2.14 yuan/share; corresponding PE is 7.55/6.49/6.00 times. Considering the company's steady profit in coking coal stocks, the undervalued and high-dividend is expected to take the lead in recovering the valuation. At the same time, it is expected that the supply and demand for coking coal will tighten, and the rise in coking coal prices is expected to drive up profits. Maintain the company's “buy” rating.
Risk warning: Demand for coal falls short of expectations; high-quality asset injections and commissioning of new projects fall short of expectations.