The decline in coal prices is putting pressure on performance. Focus on high dividend potential and main business growth, and maintain a “buy” rating

The company released its 2024 mid-year report. 2024H1 achieved operating income of 92.98 billion yuan, -15.0% year on year; realized net profit of 9.79 billion yuan, or -17.3% year on year; realized net profit of 9.66 billion yuan after deduction, or -17.8% year over year. Looking at Q2 alone, the company achieved operating income of 47.59 billion yuan, +4.8% month-on-month; realized net profit of 4.82 billion yuan, or -3.1% month-on-month, and realized net profit of 4.76 billion yuan after deduction, or -2.6% month-on-month. Taking into account factors such as the decline in coal prices in 2024, the increase in coal production and sales, and the increase in coal chemical profits, we lowered our profit forecast for 2024-2026. We expect net profit to mother of 19.62/21.4/22.55 billion yuan (previous value: 20.55/22.01/23.77 billion yuan), +0.4%/+5.4% YoY; EPS is 1.48/1.61/1.70, corresponding to the current stock price PE is 8.6/ 7.9/7.5 times The company's main business is growing, shows high dividend potential, and maintains a “buy” rating.

The decline in coal prices combined with rising costs dragged down performance growth, and increased sales of self-produced coal and reduced prices

(1) Coal business: The company also states that it is mainly producing 20 mines, with an approved production capacity of 0.163 billion tons. In terms of self-produced commercial coal, 2024H1's coal production and sales volume was 6650/ 66.19 million tons, -0.9%/+2.1%. The price of a ton of self-produced commercial coal was 584.3 yuan/ton, -6.4% year over year, the cost of a ton of coal was 292.9 yuan/ton, +2.7% year on year, and gross profit per ton of coal was 206.6 yuan/ton, -14.1% year on year. The overall revenue of 2024H1's coal business was 77.77 billion yuan, -16.8% year-on-year, operating costs 57.92 billion yuan, or -18.4% year-on-year, achieving gross profit of 19.85 billion yuan, or -11.9% year-on-year. (2) Non-coal business: The company has coal chemical business, coal mine equipment business, financial business and other businesses, of which coal chemical is the main business. The sales volume of 2024H1 polyolefin, urea, methanol, and ammonium nitrate was 76.0/1.183/0.859/0.281 million tons, respectively, +1.5%/-11.5%/-3.8%; the comprehensive sales price was 6955/2167/1773/2178 yuan/ton, respectively, +0.8%/-12.8%/+0.2%/-9.8%. The coal chemical business achieved operating income of 10.84 billion yuan, -3.5% year-on-year, and gross profit of 2.21 billion yuan, +18.1% year-on-year. The main reason for the increase in gross profit was the reduction in the cost of coal chemical products due to lower procurement prices for raw coal and fuel coal.

The company has high dividend potential, and the production capacity of the coal and coal chemical business is still increasing (1) The company has the potential to increase the dividend ratio. First, the balance ratio has continued to decline since 2021. As of June 30, 2024, it was only 48%, which is at a low to medium level among major listed coal companies. Second, capital expenditure can be covered by monetary cash. As of June 30, 2024, the company's monetary capital was 94.2 billion yuan, while the 2024 capital expenditure plan was only 16 billion yuan. Third, the ratio of the company's monetary capital and undistributed profit to net profit to mother is still at the forefront of the industry, which confirms that the company has the potential to increase its dividend ratio. On May 31, 2024, the company announced the special dividend plan and the 2024 interim dividend plan. After the special dividend, the company's cash dividend ratio for 2023 was 37.7%. If the 2024 regular dividend still refers to 30% of the previous year, then when the 2024 interim dividend is added, the company's total annual dividend ratio is expected to reach 45%, exceeding the regular dividend ratio of previous years by about 15 pcts. (2) The production capacity of the coal and coal chemical business is still increasing. In terms of coal, the company has 2 coal mines under construction, with a total approved production capacity of 6.4 million tons and a total equity production capacity of 3.24 million tons. Among them, the Libi Coal Mine is located in Shanxi Province, with a construction scale of 4 million tons/year, with an estimated total investment of 9.7 billion yuan. It is expected to be completed by the end of 2025. The Weizigou Coal Mine is located in Xinjiang. The construction scale is 2.4 million tons/year, and the total investment is expected to be 4 billion yuan. It is expected to be put into trial operation by the end of 2025. Meanwhile, Dahai is carrying out preliminary work on the second phase of the project, with a planned production capacity of 20 million tons/year. In terms of coal chemicals, Shaanxi Yulin Coal Chemical Phase II was officially launched in April 2024. The planned production capacity is 2.2 million tons/year of methanol, 0.35 million tons/year of polyethylene, and 0.55 million tons/year of polypropylene.

Risk warning: The decline in coal prices exceeded expectations; new production capacity fell short of expectations; and the release of coal production fell short of expectations.