Event: On August 30, 2024, the company released its 2024 semi-annual report. In the first half of 2024, the company achieved operating income of 5.477 billion yuan, a year-on-year decrease of 15.33%; net profit to mother was 0.552 billion yuan, a year-on-year decrease of 59.50%.

24Q2 performance improved month-on-month, and tax increases affected the release of performance. In the second quarter of 2024, the company achieved operating income of 3.215 billion yuan, down 6.86% year on year, up 42.12% month on month; net profit to mother was 0.417 billion yuan, down 29.20% year on year, up 208.89% month on month. In 24Q2, corporate taxes and surcharges increased by 0.077 billion yuan month-on-month, mainly due to the increase in the resource tax rate in Shanxi, four fees increased by 0.116 billion yuan month-on-month, of which sales/management/R&D/financial expenses were +0.04/+0.129/-0.006/-0.011 billion yuan, respectively. 24Q2's investment income increased by 0.066 billion yuan month-on-month, mainly due to shares in the mining company Armenian Daning.

Profits were damaged due to falling coal prices and rising costs, which improved month-on-month in 24Q2. 1) 24H1: The company achieved 7.0561/5.7585 million tons of coal production and sales, +9.34%/+1.66%; the price of a ton of coal was 636.99 yuan/ton, down 19.24% year on year; unit production cost was 305.61 yuan/ton, up 12.50% year on year; ton coal sales cost was 354.44 yuan/ton, up 16.13% year on year; coal business gross profit margin was 44.36%, down 16.95pct year on year. 2) 24Q2: The company achieved a coal output of 3.9388 million tons, +11.30%/+26.35%; coal sales volume of 3.3757 million tons, +6.47%/+41.67% year over month; the price of tons of coal was 640.89 yuan/ton, -7.96%/+1.49% year on month; sales cost of tons of coal was 346.68 yuan/ton, +11.44%/-5.13% year on month; gross profit margin of the coal business was 45.91%, -9.42/+ 3.78pct.

The price of urea fell, and gross margin increased year-on-year due to a sharp drop in costs. 1) 24H1: The company achieved urea production and sales volume of 0.4781/0.4763 million tons, -2.25%/-3.33%; comprehensive sales price 2010.92 yuan/ton, down 11.97% year on year; unit production cost 1573.61 yuan/ton, down 20.24% year on year; unit sales cost 1578.61 yuan/ton, down 21.25% year on year; urea gross profit margin of 21.50%, up 9.25 pcts year on year.

2) 24Q2: The company achieved urea production of 0.257 million tons, -4.92%/+16.24%; sales volume 0.2829 million tons, -1.29%/+46.28%; comprehensive sales price 1999.05 yuan/ton, -4.86%/-1.44% YoY; unit sales cost 1578.23 yuan/ton, -12.96%/-0.06% YoY; gross profit margin of urea 21.05%, +7.34/1.09pct.

24H1 caprolactam decreased year-on-year, while 24Q2 losses increased slightly month-on-month. 24H1 benefited from a year-on-year increase in prices, and the company's caprolactam business reduced the year-on-year loss by 0.047 billion yuan; in 24Q2, due to falling sales prices and rising costs, caprolactam gross margin fell 5.03 pct month-on-month, and losses increased by 0.018 billion yuan.

Investment advice: Considering the month-on-month recovery in the company's coal production and sales and the year-on-year increase in urea gross margin, we expect the company's net profit to be 1.408/2.054/2.371 billion yuan in 2024-2026, corresponding EPS of 0.95/1.38/1.60 yuan/share, respectively. The PE corresponding to the closing price on August 30, 2024 will all be 8/6/5 times, respectively, raised to the “recommended” rating.

Risk warning: Coal prices have dropped sharply; the commissioning of mines under construction falls short of expectations.