Description of the event

The company released its 2024 semi-annual report on August 28: from January to June 2024, the company achieved total operating income of 14.512 billion yuan, a year-on-year change of +3.80%; realized net profit of 1.189 billion yuan, a year-on-year change of +17.45%; net profit after deducting non-return to mother of 1.112 billion yuan, a year-on-year change of +10.66%; net cash flow from operating activities was 3.037 billion yuan, a year-on-year change of +1.47%; basic earnings per share 0.0535 yuan/share, a year-on-year change of +17.32%; the weighted average return on assets was 2.54%, an increase of 0.27 percentage points year-on-year.

Incident reviews

The increase in feed-in electricity combined with fuel costs continues to decline, and the gross margin of the electricity sector has increased. The company optimized its power generation strategy in the first half of the year to achieve a power generation capacity of 19.365 billion kilowatt-hours, +4.16%; feed-in electricity capacity of 18.356 billion kilowatt-hours, +13.55%; the average comprehensive electricity sales price was 0.4796 yuan/kilowatt-hour, +0.67% year over year; due to the increase in the share of Changxie Coal, fuel costs declined. The average electricity cost during the reporting period was 0.4055 yuan/kilowatt-hour, -8.87% year on year; power business revenue was 8.804 billion yuan, +14.32% year on year; cost 7.443 billion yuan, +3.48% year over year. The overall sales margin was 15.46%, an increase of 8.85 percentage points over the previous year.

Coal production and sales declined slightly, and the price of tons of coal fell. The company's coal production and sales declined slightly in the first half of the year due to the influence of the Shanxi and Xi'an supervision and others. The company produced 5.982 million tons of raw coal in the first half of the year, -1.11% year on year; sales volume was 5.9223 million tons, -2.68% year over year. The equivalent price of a ton of coal was 807.68 yuan/ton, -12.09%; the cost of a ton of coal was 369.62 yuan/ton, -2.99%; gross profit of a ton of coal was 438.06 yuan/ton, -18.54% YoY. Coal business revenue was 4.783 billion yuan, -14.44% year over year; coal business cost was 2.189 billion yuan, -5.58% year over year; coal business gross profit margin was 54.24%, a year-on-year decrease of 4.29 percentage points.

The coking coal business maintained high gross profit and increased cost reduction in the electricity business, and the effect of coal-electricity integration was evident. By the end of 2023, the company had a total of 3.829 billion tons of coal resources, including: coking coal resources totaling 0.922 billion tons and thermal coal resources totaling 2.907 billion tons, which is rich in resources; the company currently produces 15 coal mines, with a total production capacity of 21.1 million tons/year. In terms of electricity, the company's power holdings have a total installed capacity of 9.18 million kilowatts and a total installed capacity of 4 million kilowatts. The power plants belonging to it are distributed in Jiangsu and Henan. They are all major power plants in the region, and the number of hours used and electricity prices are relatively guaranteed. The company's coal and electricity synergy effects were evident in the first half of the year: gross profit of coal decreased by 0.679 billion yuan, but the electricity sector increased by 0.852 billion yuan. The high gross profit of coking coal continued to be compounded by the decline in fuel and coal costs, and the gross margin of the electricity sector rebounded. The company's operation was steady, and its performance was more resilient to risk.

Production capacity expansion, resource acquisition and transformation projects continue to advance steadily. The Haizetan Coal Mine is scheduled to be put into operation on the first mining site in June 2026. It is expected to produce 3 million tons of coal in that year; joint trial operation will be carried out in the first quarter of 2027, so production will be reached as soon as it is put into operation that year. The company's Sunyi Coal Mine, Jintaiyuan Coal Mine, and Mengziyu Coal Mine high-quality coking coal resource expansion projects have already begun concession procedures; at the same time, the affiliated coal mines are listed as the first batch of mines to obtain sub-coal aluminum mining rights. In terms of energy storage transformation projects, the company is committed to becoming a leading development leader and leading benchmark enterprise in the entire energy storage industry chain. The optimization of Huihong Mining's first phase 3,000 tons/year high-purity vanadium pentoxide metallurgical preparation production line, Detai Energy Storage Equipment Company's first phase 300 MW/year full vanadium liquid flow battery energy storage equipment manufacturing production line design and layout, and the Nanshan Coal Industry Optical Storage Integrated Demonstration Project with a design capacity of 2.205 MWp+1.5 mW/6 MWh are progressing steadily.

Investment advice

Considering the company's clear progress of Haizetan Coal and 2026 production targets, and the increase in gross margin of the electricity business, we raised our profit forecast for 2025-2026. The company's 2024-2026 EPS is expected to be 0.11\ 0.12\ 0.15 respectively, corresponding to the company's closing price of 1.1 yuan on August 28, and the 2024-2026 PE is 9.9\ 9.0\ 7.2 times, respectively. The company adheres to the development strategy of “coal and electricity as the foundation, energy storage as the wing”. The coking coal business continues to have high gross margins, profits in the power sector improve, and endogenous and epitaxial growth advance simultaneously. Furthermore, the company values reasonable shareholders' returns, actively implements repurchase plans, and continues to give it an “increase holdings -A” investment rating.

Risk warning

Risk of macroeconomic growth falling short of expectations; risk of coal prices falling short of expectations; risk of resource expansion and falling short of expectations due to changes in industry policy; risk of production safety; risk of electricity price; risk of petrochemical trade due to fluctuations in international crude oil prices, etc.