Core views:

China Chengxin International assesses the company's main credit rating as AAA, and the rating outlook is stable. The company issued an announcement on the subject's credit rating results. The company commissioned China Chengxin International to evaluate the subject's credit status. China Chengxin International issued the “2024 Mountain Coal International Energy Group Co., Ltd. Credit Rating Report” on July 29, 2024, which assessed the company's main credit rating as AAA, and the rating outlook was stable, and was valid from July 29, 2024 to July 29, 2025.

The company predicts that Q2 will deduct 0.8 billion yuan from non-performance centers, an increase of 33% over the previous month. Earlier, the company released an interim results forecast. In the first half of the year, it is expected to achieve net profit attributable to mother of 1.25-1.45 billion yuan, a year-on-year decrease of 52.6%-59.1%; net profit after deducting non-attributable net profit of 1.3-1.5 billion yuan, a year-on-year decrease of 51.8%-58.2%. Among them, Q2 is expected to achieve net profit of 0.67-0.87 billion yuan, a year-on-year decrease of 35.7%-50.4% and a month-on-month increase of 14.9%-49.2%; net profit without return to mother of 0.7-0.9 billion yuan, a year-on-year decrease of 34.2%-48.8%, and a year-on-month increase of 16.1%-49.3%.

The production of coal companies in Shanxi was generally damaged in the first half of the year, and the company's production is expected to gradually return to normal in the second half of the year. The efficiency of the company's coal mines is relatively good. The net profit of the main mines, Zhonghe Qulutian, Changchunxing, and Holsinghe, etc. all exceeded 200 yuan in 2023. According to the company's annual report, the company's self-produced coal output is 38.98 million tons in 2023, and the planned output in 2024 is not less than 33 million tons. The production capacity of Xinshun Coal Industry and Zhuangzihe Coal Industry is still climbing after completion and commissioning.

Profit forecasting and investment advice. The company's coal mines are generally newer, the personnel burden is light, and the unit cost advantage for self-produced coal is obvious. The profitability of tons of coal is at the forefront of coal companies in Shanxi. After safety supervision pressure dropped, new mines and increased nuclear production capacity were gradually put into operation. The medium- to long-term company coal production still had room for a slight increase, and the resource advantage of the majority shareholder, the Shanxi Coking Coal Group, was even more prominent. The company's actual dividend ratio for 21-22 reached 63% and 64%, respectively, and 30% in fiscal year 23. According to the company's 2024-2026 shareholder return plan, the 24-26 dividend ratio is to be increased to more than 60% (when major investment plans or cash expenses do not exceed 30% of total assets). The company's 2024-26 EPS is expected to be 1.62, 1.76, and 1.85 yuan/share, respectively, and will be given 10 times PE in 24 years, corresponding to a reasonable value of 16.18 yuan/share, giving the company a “buy” rating.

Risk warning. Coal prices fell more than expected, production returned to low expectations, and cost control was weak, etc.