Improvements in coal, aluminum, and electricity drive better performance, and focus on increasing dividends and the transformation of green electricity. The company that maintained the “buy” rating published its 2024 mid-year report. 2024H1 achieved operating income of 14.127 billion yuan, +6.95% year over year; realized net profit of 2.944 billion yuan, +13.99% year over year, and realized net profit of 2.879 billion yuan after deduction, or +13.96% year over year. Looking at Q2 alone, the company achieved operating income of 6.451 billion yuan, -10.04% month-on-month; realized net profit of 0.819 billion yuan, or -45.81% month-on-month, and realized net profit of 0.771 billion yuan after deduction, or -49.06% month-on-month.

Considering the year-on-year improvement in the company's various businesses and the price of aluminum remains relatively high, we raised the company's profit forecast for 2024-2026. We expect the company's net profit to be 55.2/57.9/63.9 (original value 50.3/53.2/59.6) billion yuan in 2024-2026, +21.0%/+4.9%/+10.4% year-on-year respectively; EPS was 2.46/2.58/2.85 yuan, respectively, corresponding to the current stock price PE 7.2/6.9/6.3 times. The company actively promotes the new energy business on the basis of the steady operation of its main coal and aluminum business. The installed capacity is expected to continue to expand, optimistic about the potential for transformation and growth, and maintain a “buy” rating.

Both coal and aluminum electricity have improved year over year, and new energy power is growing brilliantly

Coal business: The company is a leading lignite enterprise in Mengdong and Northeast China. The production and sales volume of 2024H1 coal was 22.67/22.22 million tons, -2.94%/-4.01% year over year, and the price of a ton of coal was 202.6 yuan/ton, +5.6% year over year; the cost of a ton of coal was 85.3 yuan/ton, +0.1% year over year, and gross margin increased 2.3 pct to 57.9%. Electrolytic aluminum business: Inner Mongolia Huomei Hongjun Aluminum & Electric Co., Ltd., the holding subsidiary of the company, owns a 0.86 million ton electrolytic aluminum production line. 2024H1's electrolytic aluminum production and sales were 44.8 and 447,000 tons, respectively, +4.36%/+3.88% year-on-year. The price of a single ton of electrolytic aluminum was 17,286 yuan, +7.2% year on year. The average price of domestic A00 aluminum was +7.4% year-on-year, and the increase was basically the same; the cost per ton was 12,995 yuan, -3.2% year over year, and the gross margin of electrolytic aluminum increased by 8.0 pct to 24.8%. Electric power business:

The company currently has 2×600MW thermal power plants, and the new energy business is developing smoothly. As of the end of June 2024, the installed capacity of new energy was 4.7798 million kilowatts, an increase of 0.2278 million kilowatts compared to the end of 2023. 2024H1 generated 5.56 billion kilowatt-hours, +24.8%, including thermal power generation 2.48 billion kilowatt-hours, -14.7% year on year, 3.07 billion kilowatt-hours from new energy generation, +99.5% year on year; 5.3 billion kilowatt-hours, +27.0% year on year, of which 2.26 billion kilowatt-hours were sold for thermal power, -14.7% year on year, and 3.04 billion kilowatt-hours from new energy sources, +99.7% year on year.

Main business growth & green power transformation, high dividends can be expected for the first time (1) The main business is expected to contribute more: In terms of the coal business, the group company has a total production capacity of 35 million tons of Baiyinhua No. 2 and No. 3 mines. Currently, the procedures related to the Baiyinhua No. 2 and No. 3 mine land use permits that the group company promised to inject have been completed, and the company's coal production capacity can be expected to increase in the future; in terms of the electrolytic aluminum business, Huo Meihong Za Aluminum Phase II 0.35 million ton electrolytic aluminum project is undergoing preliminary work, and the electrolytic aluminum business is expected to contribute flexibly to the performance of the electrolytic aluminum business; In terms of electricity business, by the end of the “14th Five-Year Plan”, The company's new energy installed capacity is expected to reach more than 10 million kilowatts, and the green power business is expected to become a new profit growth point. (2) The dividend level is expected to increase: the company's dividend ratio in 2023 is 33.43%, corresponding to the 2024 dividend rate of 4.6%. In addition, the company announced its first interim dividend in the 2024 mid-term report. It plans to distribute 0.5 yuan in cash (tax included) for every 10 shares based on a total share capital of 2.24 billion shares, for a total cash payment of 0.112 billion yuan, with a dividend rate of 3.81%. Under the market value management requirements of central enterprises, the company's dividend ratio is expected to continue to increase, and the investment value is prominent.

Risk warning: The price of coal and aluminum fell beyond expectations; the utilization rate of new energy units fell short of expectations.