Introduction to this report:

The month-on-month increase in Q2 tons of gross profit exceeded expectations, and falling costs hedge against falling coal prices. It is expected that production in the second half of the year will further increase pressure reduction costs to boost performance; the mid-term dividend in 2024 will exceed market expectations, and the dividend rate is expected to remain 60% throughout the year.

Key points of investment:

Maintain an “Overweight” rating. The company announced that in the first half of 2024, revenue was 72.312 billion yuan/ -24.07%, and net profit to mother was 7.568 billion yuan/ -31.64%. The second quarter achieved revenue of 32.678 billion yuan/-27.72%/-17.55% month-on-month, and net profit to mother of 3.812 billion yuan/year-on-year -17.34% /month-on-month +1.46%, in line with expectations. Considering the sharp drop in the company's coal sales price, the company's 24-26 EPS forecast was lowered by 1.53/1.67/1.82 (-0.40/-0.42/-0.45) yuan. According to the comparable company's 2024 average of 11.18x PE, the target price was lowered to 17.08 (-3.08) yuan.

Coal production and sales bucked the trend due to the resumption of production by Australian companies and the decline in production capacity in some mining areas. H1 achieved production of 69.08 million tons of commercial coal, an increase of 5.23 million tons or 8.2% over the previous year, and completed 49.3% of this year's commercial coal production plan. Coal sales reached 67.88 million tons, an increase of 1.93 million tons or 2.9% year over year. 24Q2 achieved commercial coal production of 34.44 million tons, +1.79% year over month, and achieved commercial coal sales of 36.61 million tons, +7.58% year over month, and +7.11% month on month. Among them, self-produced coal sales volume was 32.66 million tons, +5.75% year over year and +4.91% month over month.

We think the main reason is that the impact of bad weather in Q2 in Australia was eliminated, compounded by a rise in production capacity in Yingpan and Shilausu, causing the company's commercial coal production and sales to rise against the trend.

The month-on-month increase in Q2 tonnes of gross profit exceeded expectations, and falling costs hedged the decline in coal prices. The comprehensive price of H1 ton of coal was 697 yuan/ton, down 213 yuan/ton (-23%); the cost per ton was 406 yuan/ton, down 68 yuan/ton (-14%); the gross profit per ton was 292 yuan/ton, down 147 yuan/ton (-33.49%) year on year. Among them, the comprehensive price of Q2 tons of coal was 667.57 yuan/ton, down 206.42 (-24%) year on year and 60 yuan/ton (-8%) month on month; ton cost was 366 yuan/ton, down 73 yuan/ton (-17%) year on year, down 80 yuan/ton (-18%) month on month; gross profit per ton was 302 yuan/ton. A year-on-year increase of 20 yuan/ton (+7%). The company's gross profit resumed growth in Q2 tons, and its overall profitability exceeded market expectations. The main reason was that with prices falling slightly month-on-month, production increases and costs declined significantly, driving overall gross profit to resume growth.

Increase the mid-term dividend of 2024 to exceed market expectations. The dividend rate is 30%, and the dividend rate is expected to remain 60% for the whole year. The company announced the 2024 mid-term dividend of 0.109 per share, with an interim dividend rate of 30%, exceeding market expectations. According to the 2023-2025 profit distribution guidelines announced by the company in June 2023, it is promised that the 2023-2025 dividend ratio will not be less than 60%, higher than the previous promise of no less than 50% for 2020-2024. The dividend rate is expected to remain at a high level of 60% throughout the year.

Risk warning: Coal prices fell beyond expectations; macroeconomic recovery fell short of expectations.