1H24 performance declined year-on-year due to the impact of the coal business. I am optimistic about the long-term growth of the company's electricity

The company's 1H24 achieved operating income/net profit of 5.99/1.18 billion yuan, a year-on-year decrease of 4.4%/10.1%. The corresponding 2Q24 revenue/net profit to mother was 2.93/0.58 billion yuan, a year-on-year decrease of 13.0%/19.0%. The year-on-year decline in the company's 1H24 performance was mainly due to a 1.0387 million ton decrease in commercial coal sales and +31.6% year-on-year management expenses. 1H24's net profit from coal power generation reached 5.8 points, +15% year over year. As of the end of June 2024, the company held 198% potential coal power capacity growth space, and continued to be optimistic about the growth of the company's electricity business. We maintain the company's 2024-2026 net profit forecast of 2.15/2.45/2.66 billion yuan. Comparatively, the company's 2024 PE Wind consensus average forecast is 12.4x.

Considering that most of the company's current profits are still contributed by coal, the target PE is 11.5x2024E, with a target price of 9.55 yuan, maintaining the “gain” rating.

1H24 commercial coal sales volume -10.2% year-on-year, price without tax +24 yuan/ton 1H24's commercial coal production was -4.8% to 9.3602 million tons, of which 2Q24 was -7.9% to 4.6658 million tons, resulting in the company's 1H24/2Q24 commercial coal sales volume of -10.2%/-14.5% year-on-year to 9.1036/4.5797 million tons, respectively. 1H24's domestic coal sales were +6.4% year-on-year to 1.9838 million tons, mainly due to the company's controlled coal power generation capacity +12.4% year-on-year. We estimate that 1H24's commercial coal sales price without tax was +24 yuan/ton to 564 yuan/ton, of which 2Q24 was +10 yuan/ton to 554 yuan/ton year over year, but the overall year-on-year increase was less than the year-on-year increase of 26/17 yuan/ton in foreign sales of coal 1H24/2Q24 (564/554 yuan/ton). As a result, the company's main 1H24/2Q24 coal sales revenue fell 6.2%/12.9% year on year to 5.14/2.54 billion yuan, and gross profit decreased 3.6%/8.6% year on year to 2.05/1.02 billion yuan.

The net profit of 1H24 coal-to-electricity generation was +15% to 5.8 points, and 1H24 has a large potential for capacity growth. 1H24's feed-in electricity volume was +12.7% to 4.353 billion degrees year-on-year, of which 2Q24 was -1% to 2.021 billion compared to the same period last year. The company's feed-in price bucked the trend. 1H24 achieved a feed-in tariff of 0.4115 yuan/kilowatt-hour (excluding tax), +1.3% year-on-year. Of these, the 2Q24 feed-in price was 0.4154 yuan/kilowatt-hour, which was still +1.3% year-on-year. We estimate that the company's net profit of 1H24 coal electricity was as high as 5.8 points, +15% compared to 1H23. We believe that in addition to benefiting from the year-on-year increase in feed-in electricity volume and feed-in electricity prices, the company's 1H24 domestic coal sales price without tax also contributed - 20 yuan/ton to 551 yuan/ton year on year. As of the end of June 2024, the company holds 2 million kilowatts of coal power installed, and 5.96 million kilowatts of coal power installed capacity under construction+preparation, corresponding to 198% growth space. It is expected that all power plants will be put into operation 26 years or earlier.

Financial expenses were properly controlled. 1H24 management expenses increased significantly at the cost level over the same period last year. 1H24's financial expenses were -9.2% to 0.26 billion yuan, but management expenses were +31.6% to 0.35 billion yuan compared to the same period last year, mainly adjustments to salary expenses and social security base.

Risk warning: Electricity demand in Anhui and East China falls short of expectations, fluctuating coal prices, and the risk of falling electricity prices.