1. Company profile
China Coal Xinji Energy Co., Ltd. is a large-scale energy enterprise owned by China Coal Group and a combination of coal, electricity, and new energy sources. It is also one of the four largest coal companies in Anhui Province. By the end of 2023, the company's mineral reserves were 6.214 billion tons, and the total production capacity of production mines was 23.5 million tons/year. The company is constructing and preparing to build multiple power plants, and the total installed capacity of the company will increase from the current 3290 MW to 9,250 MW in the long term.
2. Analysis of the energy market in Anhui
Electricity consumption in Anhui Province is showing a relatively rapid growth trend. From January to April 2024, the electricity consumption of the entire society in the province was 109.6 billion kilowatt-hours, an increase of 13.6% year-on-year (significantly higher than the country's overall electricity consumption increase of 9% during the same period).
Thermal power still dominates energy in Anhui Province, and it is also an important support for future energy use growth in Anhui's economic development. At the same time, with the development of wind power and photovoltaics, the peak-shaving properties of thermal power have increased. The number of hours used by thermal power in Anhui Province is significantly higher than the cumulative average number of hours of use of power generation equipment in power plants in the country. For example, in 2023, the average number of hours used by power generation equipment in Anhui Province was 5090 hours, and the national average was only 4,466 hours).
3. Newly integrated energy advantages
1) Location advantage of Anhui Province: Compared with other major economic provinces, the price of coal is moderately low, the price of electricity is moderately high, and the utilization time of the province is basically the highest. We estimate that the IRR for investment in coal power in Anhui is about 7.9%, and the ROE level can reach 26.5% considering a debt ratio of 70%. Compared with Shandong, Inner Mongolia, Shanghai, etc., Anhui is a province with a high return on investment in coal power.
2) Advantages of the company's coal and electricity integration: Integration can iron out the coal price cycle, increasing the stability of the company's performance and long-term dividend expectations. We estimate that after the proposed project is fully completed, the “electricity/coal ratio” of the new integrated energy will reach 57% in the long term from about 15% at present.
4. Profit forecasting and valuation
It is estimated that in 24/25/26, the company's net profit to mother will be 2.22/2.64/3.42 billion yuan, respectively, corresponding EPS of 0.86/1.02/1.32 yuan, and the current stock price is 11.6/9.7/7.5 times PE. Referring to the peer coal-electricity integration company, the target price is 13 yuan/share for the first time based on the net profit returned to mother in 2024 to 15 times PE, giving it a “buy” rating for the first time.
Risk warning: the risk of large fluctuations in coal prices; the risk that the return on investment in future power plants will fall short of expectations due to the slowdown in economic development in Anhui or other factors; the risk that thermal power will be squeezed out due to the rapid development of new energy sources in Anhui Province; the risk of estimation is subjective.