Report summary:

A leading international coal company with a multi-industry layout. The company is based on coal and extends the industrial chain.

The fall in coal prices in 2023 led to a decline in performance. The company achieved revenue of 150.03 billion yuan, a year-on-year decrease of 33.3%; net profit to mother was 20.14 billion yuan, a year-on-year decrease of 39.6%. In 2024, the company's revenue in Q1 was 39.63 billion yuan, down 20.8% year on year; net profit to mother was 3.76 billion yuan, down 41.9% year on year; in 2023, the company's ROE (diluted) was 27.7%, leading level of profitability.

Coal production and sales have been rising steadily, and Changxie coal accounts for a low share and has high performance flexibility. The company is rich in coal reserves and has an asset layout at home and abroad. By the end of 2023, the company's approved coal production capacity was 0.23 billion tons/year, and the production capacity under construction was 11.8 million tons/year. The Group's coal mines are expected to be injected into listed companies in the future. The company sold 0.127 billion tons of coal in '23, a decrease of 6% over the previous year. The company plans to produce 0.14 billion tons of commercial coal for the whole of '24. The company's Changxie accounts for only 26% of sales, and has high profit elasticity.

There is a tight balance between natural gas supply and demand, and price increases are expected to drive coal prices. There is a substitution effect for overseas coal and natural gas. On the supply side, the increase in natural gas trade mainly comes from LNG, and supply is expected to be in short supply in 24-25. From the demand side, global LNG imports mainly come from Europe and the Asia-Pacific region. Overall gas consumption in Europe is slowing down, but inventories are low, and there may be demand for replenishment in the future; demand from China has risen, and demand from Japan and South Korea has recovered. According to Shell's estimates, by 2025, global demand for liquefied natural gas will be about 45.5 million tons, supply is about 39 million tons, and 2.6 million tons are under construction. There will be a gap of about 3.9 million tons. The recovery in international natural gas prices is expected to drive coal prices.

The high-end transformation of coal chemicals is expected to increase performance. The company's coal chemical production capacity continues to expand. By the end of 2023, the company's approved coal chemical production capacity exceeded 8 million tons/year. Modern coal chemicals account for more than 70% of the planned production, and there is still plenty of room for growth in production capacity. At the same time, the company's gross margin of coal chemicals is highly correlated with international oil prices, and is expected to rise as oil prices rise.

Lay out five major development directions and build a world-class clean energy enterprise. In 2021, the company released the “Development Strategy Outline” for the next 5-10 years. Based on the current industrial layout, the five industries of mining, high-end new chemical materials, new energy, high-end equipment manufacturing, and smart logistics were established as key development directions to build a world-class sustainable clean energy leading demonstration enterprise.

Profit forecast and investment advice: The company's total revenue for 24-26 is estimated to be 148/152.8/158.5 billion yuan, respectively; net profit to mother is 19/20.3/22.3 billion yuan, respectively; net profit to mother is 19/20.3/22.3 billion yuan, respectively, -5.8%/+7.0%/+10.0% year over year; EPS is 1.89/2.02/2.22 yuan/share; corresponding PE is 7.55/7.06/6.41 times. Considering the company's low share of thermal coal cooperation, high profit flexibility, continuous expansion of business production capacity, and compounding the five key development directions of the major industries, the company's performance is expected to continue to increase. Maintain the company's “buy” rating.

Risk warning: the rise in coal prices fell short of expectations; coal production fell short of expectations; the impact of safety incidents.