Incident: Hengyuan Coal and Electricity released its 2024 semi-annual report: From January to June 2024, the company achieved operating income of 3.893 billion yuan, a year-on-year decrease of 8.13%, net profit to mother of 0.758 billion yuan, a year-on-year decrease of 32.14%, and net profit to mother after deduction was 0.769 billion yuan, a decrease of 30.65% year-on-year. Basic earnings per share were 0.63 yuan, a year-on-year decrease of 32.14%. The weighted average return on net assets was 5.87%, a year-on-year decrease of 2.16 pcts.
On a quarterly basis, in the second quarter of 2024, the company achieved operating income of 1.842 billion yuan, a decrease of 10.18%, a year-on-year decrease of 7.89%; realized net profit to mother of 0.327 billion yuan, a decrease of 24.11% and a year-on-year decrease of 35.78%; and realized net profit of 0.337 billion yuan after deduction, a decrease of 22.09% month-on-month and 34.25% year-on-year.
Comment:
The volume of the coal business rose and the price fell, and the increase in costs led to a decline in profits. 1) Production and sales volume: According to the company's 2024 semi-annual report, the company's commercial coal production in the first half of 2024 was 3.8475 million tons (+6.98% year over year); the company's commercial coal sales volume was 3.8815 million tons (+2.36% year over year). The company's commercial coal production in the second quarter was 1.8989 million tons (+2.59% year over month, -2.55% month on month); the company's commercial coal sales volume was 1.9644 million tons (+7.84% year over year, +2.47% month on month). 2) Price and cost: The average sales price of the company's coal in the first half of 2024 was 954.53 yuan/ton (-9.21% YoY); the average sales cost of the company's coal was 558.10 yuan/ton (+2.40% YoY). The average sales price of the company's coal in the second quarter was 893.42 yuan/ton (-13.11% YoY, -12.16%); the average sales cost of the company's coal was 555.11 yuan/ton (+9.42% YoY, -1.08%). 3) Profit: In the first half of 2024, the company's gross profit per ton of coal was 396.43 yuan/ton (-21.70% year-on-year). The gross profit of tons of coal in the second quarter was 338.31 yuan/ton (-35.06% year over year, -15.53% month on month).
Overall, from January to June 2024, the company's coal business achieved operating income of 3.705 billion yuan (-7.07% year over year), mainly due to the decline in coal prices in the current period; operating costs were 2.166 billion yuan (+4.81% year over year), mainly due to the increase in non-management employee remuneration and other costs in the current period; achieved gross profit of 1.539 billion yuan (-19.86% year on year), and gross margin of 41.53% (-6.63pct year on year).
The registered capital was increased to electricity sales companies, and the integration of coal and electricity progressed steadily. According to the company's announcement, according to the company's new energy development plan and deployment, the company plans to increase the registered capital of electricity sales companies by 0.12 billion yuan in order to solve the problem of distributed photovoltaic power generation projects in coal mines in the Huaibei area and expansion of electricity sales business. The capital flow for this capital increase is: 1) Distributed photovoltaic power generation projects such as the Qianyingzi Mine, Wugou Mine, Renlou Mine, Hengyuan Deep Well, etc., with an installed capacity of 0.01814 million kilowatts. Construction of the above projects began in March of this year, and it is planned to be connected to the grid in June. 2) A feasibility study report on the distributed photovoltaic power generation project of Wolonghu Mine, Hengtai Company, and Xiangyu Logistics Park is being prepared, with an installed capacity of 0.01104 million. Construction is scheduled to begin in June and connected to the grid by the end of 2024. 3) The second phase of the 1×1000MW ultra-supercritical coal-fired generator expansion project of Anhui Qianyingzi Power Generation Company officially started construction in March 2023, and the test operation of the unit is scheduled to be completed by the end of December 2024.
Profit forecasting and investment advice. We recommend Hengyuan Coal Power based on the following three aspects: 1) The company is located in the Yangtze River Delta region and has significant location advantages. 2) The company vigorously promotes new mining technology and new management models, and has good cost control. 3) The main types of coal sold by the company are complete, and production and sales are stable. In 2024-2026, we expect the company to achieve operating income of 7.503 billion yuan, 7714 billion yuan, and 8.085 billion yuan, net profit to mother of 1.628 billion yuan, 1.664 billion yuan and 1,739 billion yuan, EPS (diluted) of 1.36 yuan, 1.39 yuan, and 1.45 yuan, corresponding PE of 7.0x/6.6x at a closing price of 9.48 yuan/share on August 21, 2024.
Risk warning: production safety risks, systematic decline in coal prices, stricter environmental safety supervision policies, downstream demand falling short of expectations