Incident: In the first half of 2024, the company achieved operating income of 14.057 billion yuan, or -32.0% YoY; realized net profit to mother of 1.29 billion yuan, or -58.1% YoY. In the second quarter of 2024, revenue was 7.701 billion yuan, or -23.2% YoY; net profit to mother was 0.707 billion yuan, or -48.6% YoY.

The company's production and sales were affected in the first half of the year, and performance declined year on year. In 2024, H1 achieved 15.38 million tons of raw coal production, -27.4%; commercial coal sales volume was 20.83 million tons, or -22.7% year over year, of which sales volume of self-produced coal was 11.92 million tons, or -38.5% year over year, and sales volume of trade coal was 8.91 million tons, +17.8% year over year. In terms of price, the average price of the company's coal was 660 yuan/ton, -12.6%; the price of self-produced coal was 686 yuan/ton, -6.1%; the price of traded coal was 626 yuan/ton, -23.7%, the gross profit of tons of coal was 225 yuan/ton, or -33.0%, gross profit of self-produced coal was 379 yuan/ton, -16.1%, and the gross profit of trade coal was 18 yuan/ton, or -51.5% year-on-year.

Q2 The volume and price of the company's own coal improved month-on-month. Q2 self-produced coal sales were 6.46 million tons, +18.2% month-on-month; trade coal sales were 5.08 million tons, +32.5% month-on-month. In terms of price, Q2 self-produced coal tons sold for 706 yuan/ton, +6.6% month-on-month, 590 yuan/ton, -12.5% month-on-month; gross profit of self-produced coal tons was 400 yuan/ton, +13.1% month-on-month, and gross profit of trading coal tons was 12 yuan/ton, or -54.2% month-on-month. The company's gross profit from self-produced coal was 2.58 billion yuan, +33.6% month-on-month. The volume and price of self-produced coal increased sharply, and the company's Q2 performance improved month-on-month.

The company is also increasing production capacity. According to the company announcement, Changchun Coal completed the 6 million tons/year production factor announcement, Ling Zhida Coal completed the 2.4 million tons/year production factor announcement, and Hanjiawa Coal completed the 1.5 million tons/year production factor announcement. As the utilization rate of production capacity in Shanxi Province increases, the company's production and sales volume is expected to increase significantly in the future.

We anticipate 2024-2026 net profit of 3.094/3.55/3.857 billion yuan, or -27.36%/+14.72%/+8.66%, EPS of 1.56/1.79/1.95 yuan; the corresponding PE for the stock price on September 4, 2024 will be 7.55/6.58/6.05 times. As “Gold Nine Silver Ten” enters the peak construction season, demand for non-electric coal is gradually showing the effect of increasing coal prices in the market. The company is expected to benefit from the elasticity of rising coal prices and give it a “highly recommended” rating.

Risk warning: Economic growth fell short of expectations; coal prices fell sharply; asset injection progress fell short of expectations.