1H24 performance was better than our expectations

The company announced interim results: net profit of 10.556 billion yuan (corresponding EPS 1.09 yuan) in 1H24, -8.8% year-on-year, after deducting non-attributable net profit of 11.182 billion yuan, or -18.0% year-on-year. The company's profit decline in the first half of the year was less than we expected. We think the main reason is that the company's coal sales price fell relatively little, and the cost of a ton of coal also improved accordingly. In 2Q24, the company's net profit attributable to mother was +26.5%/+26.9% month-on-month to 5.904 billion yuan, and net profit after deducting non-return to mother -8.4%/+8.9% month-on-month to 5.828 billion yuan.

Comments: 1) Production increased slightly. 1H24's commercial coal production was +2.78% to 86.41 million tons, and sales volume was +2.3% to 0.1316 billion tons, of which sales volume from coal production was +0.7% YoY to 83.39 million tons. 2Q24 commercial coal production was +4.0% YoY/+8.4% to 44.95 million tons. Considering the increase in coal stocks, we expect the company's sales volume to increase month-on-month in the second half of the year. 2) The price of coal has declined, and the decline is relatively small. The price of coal produced by 1H24 was -9.5% to 538.2 yuan/ton. During the same period, the average price of 6000 kcal power block coal in Yulin, Shaanxi was -16.8% year-on-year. 3) Cost improvement. The full cost of 1H24's original tonne of coal preparation was -5.5% or -16.38 yuan to 281.4 yuan, of which the foreign commission's operating costs/fuel fees/related taxes for tons of coal were -3.07/-3.04/-5.88 yuan year-on-year. 4) 1H24's investment income was -0.281 billion yuan to 0.932 billion yuan; profit and loss from change in fair value was +2.019 billion yuan to -0.641 billion yuan year-on-year. Among them, profit and loss from changes in fair value of private equity funds and securities investment financial assets were -0.956 billion yuan and 0.305 billion yuan. As the company's investment in Salt Lake shares shifts to long-term equity investment, looking ahead, we believe that fluctuations in the company's fair value are expected to narrow further. 5) It is proposed to pay mid-term dividends. The company plans to pay a cash dividend of 1.09 yuan (tax included) to shareholders for every 10 shares, with a total cash dividend of 1.056 billion yuan, which is equivalent to 10% of 1H24's net profit to mother.

Development trends

The sales structure of electricity, coal and chemicals supports the company's coal sales price. Demand for coal has been growing steadily since this year. Among them, demand for chemical coal is still growing. Data from the Coal Resources Network shows that 1H24 chemical coal is +12% year over year. Considering that the company's electricity and coal sales have a certain guarantee and that chemical coal sales are too high, we believe that fluctuations in the company's coal sales price are relatively manageable, supporting the company's steady profit operation. Strong resource continuity capacity and high-quality endowment support the long-term development of the company. By the end of 2023, the company's coal reserves were 10.441 billion tons, and the mining period was over 70 years. Most of the resources were located in high-quality coal mining areas such as northern Shaanxi. In the first half of this year, the company accelerated the Ida approval process related to Little Houtu 1 and the Western Exploration Area. Looking ahead, we believe that the company's excellent conditions and strong resource reserves will support its long-term sustainable development.

Profit forecasting and valuation

Taking into account the impact of factors such as our assumption of lowering coal prices, the 2024/25e profit was lowered by 10%/6% to 21.5/22.6 billion yuan. The current stock price is 10.8x/10.3x for 2024/25e P/E. Considering the company's cost advantage and strong resource continuity capacity, we maintain the company's competitive industry rating and target price unchanged. The corresponding 2024/25e P/E is 12.2x/11.6x, implying 13% upward space.

risks

Demand recovery fell short of expectations; project progress fell short of expectations.