Performance declined under pressure from volume and price, and attention was paid to coal injection elasticity and high dividends. The company that maintains a “buy” rating publishes its 2024 mid-year report. 2023H1 achieved operating income of 17.65 billion yuan, or -19.33% YoY, net profit attributable to mother of 2.23 billion yuan, or -57.96% YoY; net profit not attributable to mother of 2.25 billion yuan, or -57.31% YoY.

Looking at Q2 alone, the company achieved operating income of 9 billion yuan, +3.88% month-on-month, net profit of 0.94 billion yuan, -27.11% month-on-month, and net profit of 0.96 billion yuan after deducting non-return net profit of 0.96 billion yuan, or -24.94% month-on-month. Considering that the coal price correction is still relatively low, we lowered our 2024-2026 profit forecast. We expect the company to achieve net profit of 41.4/43.8/46.6 (previous value 80.7/83.0) billion yuan in 2024-2026, or -47.7%/+6.5% year-on-year; EPS is 1.38/1.46/1.56 yuan, corresponding to the current stock price PE is 10.3/9.7/9.1 times. As the only national high-tech enterprise in the coal industry, the company has strong cost control capabilities. The current valuation is still low and maintains a “buy” rating.

Volume and price pressure in the first half of the year, and costs rose slightly

Production and sales declined year over year. 2024H1, the company produced 27.67 million tons of raw coal, -6.3% year-on-year, and sold 24.55 million tons of commercial coal, -9.5% year-on-year. Among them, mixed coal production sales were 13.77/13.85 million tons, respectively, -10.1%/-9.8% year-on-year, and injection coal sales were 9.7/9.36 million tons, respectively, and -5.1%/-4.7% year-on-year respectively. Looking at Q2 alone, the company's raw coal production was 14.43 million tons, +9.0% month-on-month, and commercial coal sales were 12.74 million tons, +7.9% month-on-month.

Among them, mixed coal production and sales were 7.32/7.3 million tons, respectively, +13.5%/+11.5% month-on-month, and injection coal sales were 4.85/4.77 million tons, respectively, flat/+3.9% month-on-month respectively. The comprehensive sales price of commercial coal declined year-on-month.

The comprehensive sales price of 2024H1's commercial coal was 683.1 yuan/ton, -11.6% year on year; the comprehensive sales price of 2024Q2's commercial coal tons was 677.2 yuan/ton, -1.8% month-on-month. The decline was mainly due to the decline in market coal prices. The cost of selling tons of coal increased year over year. 2024H1 company's tonne coal sales cost/gross profit was 37.14/31.17 billion yuan, respectively, +10.1%/-28.4% year over year; 2024Q2 company's tonne coal sales cost/gross profit was 36.55/31.17 billion yuan, respectively, -3.3%/+0.03% month-on-month.

Production capacity is still increasing, and high dividends highlight investment value

Coal production capacity is still increasing: the company's coal production capacity is still increasing. The Shangzhuang Coal Mine was put into operation in the first half of 2023, and production capacity continues to climb. At the same time, it also has a total production capacity of 3 million tons/year from the four mines under construction in Jing'an Coal, Xinyu Coal, Houbao Coal, and Yuxin Coal, and a planned mine, Yuanfeng Mining, 3 million tons/year. Furthermore, the company plans to complete the production capacity increase procedures for the four mines in Heilong, Yita, Heilongguan and Cilinshan within 2024.

As a leading domestic coal injection company, the company's excellent cost control capabilities are compounded by future production capacity growth, and the company's performance is expected to continue to be released. On August 22, 2024, the company's announcement department participated in the listing and sale of coal prospecting rights in the Shangma block of Xiangyuan County, Shanxi Province, and competed for the coal prospecting rights for 12.126 billion yuan, adding 819.575 million tons of the company's coal resources. It is expected to complete exploration within 2 years, complete the registration of transfer and enter the mine infrastructure stage within 3-4 years, which is expected to increase the company's long-term production capacity. The investment value is highlighted: The company plans to distribute a cash dividend of 15.89 yuan (tax included) for every 10 shares in 2023, with a total dividend rate of 60%. If the dividend rate remains unchanged, the net profit to the mother according to the 2024 forecast corresponds to the current market value. The dividend rate is 5.8%. The high dividend highlights the investment value.

Risk warning: Economic recovery fell short of expectations; coal prices fell beyond expectations; production and sales growth fell short of expectations.