As one of the four major state-owned coal companies in Anhui, Xinji Energy relies on the controlling shareholder China Coal Group. It uses coal mining and washing as its main business, plans and lays out the thermal power business to achieve integrated development of coal power.

Coal business: There is plenty of room to increase production due to high quality resources, and the proportion of private use is expected to increase dramatically. 1) Abundant resource reserves. The types of coal produced by Xinji Energy are gas coal and 1/3 coking coal. The quality is stable, has the characteristics of medium to low ash, very low phosphorus, and medium to high calorific value. It is an environmentally friendly type of coal and is a high-quality fuel for power plants. The company has 5 fully controlled production mines, with an approved production capacity of 23.5 million tons and a recoverable reserve of 1.467 billion tons. The estimated mining period is about 48 years, and the reserves are very rich. 2) The long-term planned production capacity reached 35.9 million tons/year. The National Development and Reform Commission approved 12 new energy planning mines in 2005, with a planned total production capacity of 35.9 million tons/year. Xinji Energy is promoting the reconstruction of the Yangcun Coal Mine (5 million tons/year, construction suspended due to supply-side reforms). At the same time, it also has prospecting rights at various locations such as the Luoyuan Survey Area and the Liantang Li Survey Area, which is expected to contribute to production growth in the future. 3) Changxie accounts for a high share, and the increase in the benchmark price helps increase profits. Xinji Energy's share of Changxie coal accounts for about 85%, and Gaochangxie's share helps stabilize its coal price center.

Since the 2022 Changxie benchmark price was raised from 535 yuan/ton (implemented in 2017) to 675 yuan/ton, the sales price center for tons of coal has risen markedly. It is estimated that the net profit of tons of coal to mother in 2021-2023 was 128.5 yuan/ton, up 214.21% from the average value of 40.9 yuan/ton in 2017-2020, and profitability increased significantly. The scale of coal used by Xinji Energy in 2023 is 4.67 million tons (accounting for 24%). With the gradual commissioning of new power plants in the future, domestic sales volumes are expected to be 4.77, 6.57, and 14.99 million tons respectively (26%, 35%, and 77% of self-use, respectively) in 2024-2026.

Electricity business: Increased volume and price increases have opened up room for growth, and the scale of profit can be expected to expand steadily. 1) It has a large number of thermal power units under construction/preparation, and future growth can be expected. Xinji Energy has four power plants in production, with an installed capacity of 3,314 MW and an installed equity capacity of 1,756 MW. Among them, the Xuancheng Power Plant (with an installed capacity of 1,290 MW and an installed equity capacity of 632 MW) is a participating power plant. The company has four power plants under construction, of which the Lixinboard Power Plant Phase II (2*660MW) is expected to be put into operation in October 2024; at the same time, three new power plants under construction, Shangrao (2*1000MW), Chuzhou (2*660MW), and Lu'an (2*660MW) will commence construction in the first half of 2024 and are expected to be put into operation in 2026. By 2026, the installed capacity of Xinji Energy Holdings is expected to reach 7984 MW (58% CAGR in the 2023-2026 period), and the power generation capacity is expected to reach 41.2 billion kilowatt-hours (33.8% CAGR in the 2023-2026 period). 2) The increase in the floating range will drive profit growth, and capacity electricity prices are expected to open up incremental space. In 2021, the Development and Reform Commission expanded the range of transaction prices in the coal-fired power generation market from an increase of no more than 10% and a drop of no more than 15% in principle to a vertical fluctuation of no more than 20%. The average feed-in price of Xinji Energy rose 20.39% year-on-year in 2022. In 2022 and 2023, it is estimated that the company's net profit returned to the mother was 0.004 and 0.013 yuan/kilowatt-hour, respectively, up 108.60% and 254.49% year-on-year, respectively, and profit improved markedly. In November 2023, the Energy Administration announced the establishment of a coal-capacity electricity pricing mechanism starting January 1, 2024, and made it clear that the price of electricity capacity in Anhui Province will be implemented according to 100 yuan/KW* per year, and that the ratio will increase to no less than 165 yuan/KW* year starting 2026. With the continuous increase in the price standards for capacity electricity and the commissioning of new power plants, the company's power sector's profit is expected to increase dramatically.

Profit forecast, valuation and investment rating: The estimated revenue for 2024-2026 is 12.717/14.334/20.373 billion yuan, and the realized net profit is 2.379/2.512/2.944 billion yuan. The estimated earnings per share is 0.92/0.97/1.14 yuan. The current stock price is 8.52 yuan, and the corresponding PE is 9.3X/8.8X/7.5X, respectively. Considering that the company's coal-electricity integration has high growth potential and strong profit certainty, it covered and gave the company a “buy” rating for the first time.

Risk warning: Risk of a sharp drop in coal prices, falling short of expectations on the commissioning of new power plants, falling short of expectations, insufficient implementation of capacity electricity price policies, and untimely updates of research and usage information data.